S.P. KOROLEV ROCKET AND SPACE CORPORATION ENERGIA. FINANCIAL STATEMENTS OF S.P. KOROLEV ROCKET AND SPACE PUBLIC CORPORATION ENERGIA for 2016 and 2015

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1 S.P. KOROLEV ROCKET AND SPACE CORPORATION ENERGIA FINANCIAL STATEMENTS OF S.P. KOROLEV ROCKET AND SPACE PUBLIC CORPORATION ENERGIA for 2016 and

2 CONTENT FINANCIAL STATEMENTS FOR BALANCE SHEET... 4 PROFIT AND LOSS STATEMENT... 9 STATEMENT OF CHANGES IN EQUITY CASH FLOW STATEMENT NOTES TO FINANCIAL STATEMENTS FOR AUDIT REPORT AUDIT COMMISSION FINANCIAL STATEMENTS FOR BALANCE SHEET PROFIT AND LOSS STATEMENT STATEMENT OF CHANGES IN EQUITY CASH FLOW STATEMENT NOTES TO THE BALANCE SHEET AND PROFIT AND LOSS STATEMENT AUDIT REPORT INTERNAL AUDIT COMMISSION

3 FINANCIAL STATEMENTS OF S.P. KOROLEV ROCKET AND SPACE PUBLIC CORPORATION ENERGIA for 2016 In accordance with paragraph 9 of the Decree of the Russian Federation Government No "On improvement of management of public companies with shares, related to the federal property, and federal state unitary enterprises", dated , financial statements shall be presented for a 2-year (current and previous) term and shall become an appendix to the Annual Report of RSC Energia for

4 BALANCE SHEET as of December 31, 2016 Form as per OKUD S.P. Korolev Rocket and Space Date (day, month, year) Organization Public Corporation Energia as per OKPO Taxpayer ID Number INN Type of Research and development as per activity in the field of natural sciences and technology OKVED Legal organizational form / Form of ownership as per Public Company / Private ownership as per OKOPF/ОКFS Unit of measurement: RUB thousand as per OKEI Location (address) 4A Lenin St., Korolev, Moscow Region, 643, Codes Notes 3.2; 3.3 Intangible assets Item ASSETS I. NON-CURRENT ASSETS Line Code as of December 31, 2016 as of December 31, 2015 as of December 31, ,3 Research and development results Intangible development assets Tangible development assets ; 3.5 Fixed assets ,4 Income-bearing investments in tangible assets ,6 Financial investments Deferred tax assets ; 3.5 Other non-current assets TOTAL of Section I ; 3.8; II. CURRENT ASSETS 3.9; 3.10 Inventory Value added tax on acquired assets ,12 Accounts receivable ,6 Financial investments (excluding cash equivalents) Cash and cash equivalents Other current assets TOTAL of Section II BALANCE

5 Notes 3, 13 Item LIABILITIES III. CAPITAL AND RESERVES Line Code as of December 31, 2016 as of December 31, 2015 Form , p.2 as of December 31, 2014 Authorized capital (joint-stock capital, authorized 1310 fund, partners contributions) Shares repurchased Non-current assets revaluation Additional capital (without revaluation) , 13 Reserve capital , 13 Retained earnings (uncovered loss) 1370 ( ) TOTAL of Section III IV. LONG-TERM LIABILITIES 3,14 Borrowings Deferred tax liabilities ,27 Estimated liabilities ,15 Other long-term liabilities TOTAL of Section IV V. SHORT-TERM LIABILITIES 3,14 Borrowings ,15 Accounts payable ,18 Deferred revenue ,27 Estimated liabilities Other short-term liabilities TOTAL of Section V BALANCE First Deputy Director General for Financial and Economic Activity: (signature) Vinokurov Pavel Vyacheslavovich (full name) March 31,

6 Breakdown of Separate Balance Sheet Indicators Explanations Name of indicator Line Code As of December 31, 2016 As of December 31, 2015 As of December 31, Intangible assets (line 1110), including: 3,2; 3,3 Patents, "know-how", copyrights Uncompleted operations for ,2; 3,3 acquisition of intangible assets Research and development results (line 1120), including: 3,3 Completed R&D ,3 In-process R&D Fixed assets (line 1150), including: 3,4 buildings and structures ,4 machinery and equipment ,4 transportation equipment Uncompleted capital investments (excluding subsidiary account , ) Equipment to be installed Income-bearing investments (line 1160), including: 3,4 Things offered for lease Financial investments (line 1170), including: 3,6 stocks and shares of affiliates ,6 stocks and shares of dependent companies ,6 stocks and shares of other companies ,6 long-term loans granted Other non-current assets (line 1190), including: expenditures undertaken in connection with the upcoming works under the construction project contract, which are included in the cost of projects ,5 under construction included in subsidiary account Organization of construction works uncompleted capital outlays for housing projects included in ,5 subsidiary account Advances paid out for capital investments value-added tax for contract works in housing projects, included in subsidiary account ,

7 Explanations Name of indicator Line Code As of December 31, 2016 As of December 31, 2015 As of December 31, Inventory (line 1210), including: raw materials, materials and other ,7 similar objects of value ,9 Expenses in in-process inventory Accounts receivable (line 1230), including: Non-current loan receivable 3,12 Buyers and customers ,12 Advance paid out Short-term loan receivable ,12 Buyers and customers ,12 Advance paid out Cash and cash equivalents (line 1250), including: 3,11 Money equivalents Other current assets (line 1260), including: VAT declared for refund under agreements and contracts VAT on advances received Reserve capital / Fund of capital asset and special movable valuables (line 1360), including: Backlogs formed according to basic ,13 documents Borrowings (line 1410), including: 3,14 credit accommodations Estimated liabilities (line 1430), including: estimated liabilities on holidays estimated liabilities on costs to be incurred for warranty maintenance ,27 and technical support of SS estimated liability on investment project Other long-term liabilities (line 1450), including: 3,15 suppliers and subcontractors ,15 advances received ,15 Participation interest in construction Borrowings (line 1510), including: 3,14 credit accommodations Accounts payable (line 1520), including: 3,15 suppliers and subcontractors ,15 payables to organization employees ,15 debt to state non-budgetary funds

8 Explanation s Name of indicator Line Code As of December 31, 2016 As of December 31, 2015 As of December 31, ,15 tax and due liabilities ,15 advances received ,15 liability owed to participants for payment of dividends Deferred revenue (line 1530), including: special-purpose financing of research ,18 activities Estimated liabilities (line 1540), including: 3.27 estimated liabilities on holidays estimated liabilities on costs to be incurred for warranty maintenance and technical support of SS estimated liability on capital project Other short-term liabilities (line 1550), including: participation interest in construction VAT for advances paid out First Deputy Director General for Financial and Economic Activity: Vinokurov Pavel Vyacheslavovich March 31,

9 S.P. Korolev Rocket and Space Form as per OKUD Organization Public Corporation Energia as per OKPO Taxpayer ID Number Type of Research and development activity in the field of natural sciences and technology Legal organizational form / Form of ownership as per Public Company Unit of measurement: RUB thousand PROFIT AND LOSS STATEMENT for January - December 2016 /Private ownership Date (day, month, year) INN as per OKVED r OKOPF/ОКFS as per OKEI Codes Notes Item Line Code for January - December 2016 for January - December ,19 Revenues Cost of sales 2120 ( ) ( ) Gross profit (loss) Selling expenses 2210 ( ) ( ) Administrative expenses (G&A) Sales profit (loss) ,19 Income from participation in other entities ,19 Interest receivable Interest payable 2330 ( ) ( ) 3,21 Other income ,21 Other expenses 2350 ( ) ( ) Profit (loss) before tax 2300 ( ) ,16 Current income tax 2410 ( ) ( ) including constant tax liabilities ,17 (assets) ( ) ( ) 3,17 Change in deferred tax liabilities 2430 (58 347) ,17 Change in deferred tax assets Other 2460 (29 074) (72 557) Net profit (loss): 2400 ( )

10 Form , p.2 Notes Item Line Code for January - December 2016 for January - December 2015 FOR REFERENCE Result from the non-current assets revaluation, not included in the net profit (loss) for the period Result from other operations, not included in the net profit (loss) for the period Consolidated financial result for the period 2500 ( ) ,23 Basic earnings (loss) per share Diluted earnings (loss) per share First Deputy Director General for Financial and Economic Activity: (signature) Vinokurov Pavel Vyacheslavovich (full name) March 31,

11 Breakdown of Profit and Loss Statement Indicators For January December 2016 Notes Name of indicator Line for January - December for January - December code Revenues (line 2110), including: research and development activities in the area of natural and technical ,19 sciences services in the area of construction, social sphere, distributive services and ,19 catering services relating to assignment of Corporate assets for value for temporary ,19 use (temporary possession and use) Cost of sales (line 2120), including: research and development activities in the area of natural and technical sciences ( ) ( ) services in the area of construction, social sphere, distributive services and catering ( ) ( ) services relating to assignment of Corporate assets for value for temporary use (temporary possession and use) ( ) ( ) Gross profit (loss) (line 2100), including: research and development activities in the area of natural and technical sciences services in the area of construction, social sphere, distributive services and catering services relating to assignment of Corporate assets for value for temporary use (temporary possession and use) Selling expenses (line 2210), including: research and development activities in the area of natural and technical sciences ( ) ( ) services in the area of construction, social sphere, distributive services and catering ( ) ( ) Sales profit (loss) (line 2200), including: research and development activities in the area of natural and technical sciences services in the area of construction, social sphere, distributive services and catering services relating to assignment of Corporate assets for value for temporary use (temporary possession and use) Other income (line 2340), including: incomings associated with sale of property, plant and equipment and other ,21 assets

12 Notes Name of indicator Line for January - December for January - December code ,21 income associated with compensation of losses Other expenses (line 2350), including: expenses associated with equity holding of other organizations and sale of fixed ( ) ( ) 3,21 and other assets Expenses associated with provisioning for doubtful debts for depreciation of financial investments, costs reduction of tangible assets, warranty ( ) ( ) 3,21 maintenance and others First Deputy Director General for Financial and Economic Activity: Vinokurov Pavel Vyacheslavovich March 31,

13 Organization Taxpayer ID Number Type of activity Research and development in the field of natural sciences and technology Form as per OKUD as per OKPO Legal organizational form / Form of ownership as per Public Company Unit of measurement: RUB thousand STATEMENT OF CHANGES IN EQUITY for January - December 2016 S.P. Korolev Rocket and Space Public Corporation Energia / Private ownership Date (day, month, year) INN as per OKVED r OKOPF/ОКFS as per OKEI Codes Changes in Equity Item Line Code Authorized capital Shares repurchased Additional capital Reserve capital Retained earnings (uncovered loss) Total Capital value as of December 31, For 2015 Capital increase - total: including: Net profit 3211 X X X X Revaluation of assets 3212 X X - X - - Income directly charged to the capital increase 3213 X X - X Additional share issue X X - Increase in the par value of shares X - X Legal entity reorganization

14 Item Line Code Authorized capital Shares repurchased 14 Additional capital Reserve capital Retained earnings (uncovered loss) Form , p.2 Capital decrease total: ( ) - ( ) ( ) including: Loss 3221 X X X X - - Revaluation of assets 3222 X X ( ) X - ( ) Expenses directly charged to the capital decrease 3223 X X - X (9 790) (9 790) Decrease in the par value of shares X - - Decrease in the number of shares X - - Legal entity reorganization Dividends 3227 X X X X ( ) ( ) Changes in additional capital 3230 X X (4 081) X Changes in reserve capital 3240 X X X - - X Capital value as of December 31, For 2016 Capital increase - total: including: Net profit 3311 X X X X - - Revaluation of assets 3312 X X X Income directly charged to the capital increase 3313 X X - X Additional share issue X X - Increase in the par value of shares X - X Legal entity reorganization Capital decrease total: ( ) ( ) including: Loss 3321 X X X X ( ) ( ) Revaluation of assets 3322 X X - X - - Expenses directly charged to the capital decrease 3323 X X - X (6 454) (6 454) Decrease in the par value of shares X - - Decrease in the number of shares X - - Legal entity reorganization Dividends 3327 X X X X ( ) ( ) Changes in additional capital 3330 X X ( ) X Changes in reserve capital 3340 X X X - - X Capital value as of December 31, ( ) Total

15 Item 2. Adjustments introduced due to changes in the accounting policy and the correction of errors Changes in equity for 2015 Line Code as of December 31, 2014 due to net profit (loss) due to other factors as of December 31, 2015 Form , p.3 Capital total Prior to adjustments Adjustments due to: changes in the accounting policy correction of errors ( ) ( ) After adjustments including: Retained earnings (uncovered loss): Prior to adjustments Adjustments due to: changes in the accounting policy correction of errors ( ) ( ) After adjustments Prior to adjustments Adjustments due to: changes in the accounting policy correction of errors After adjustments

16 Form , p.4 3. Net Assets Item Line Code as of December 31, 2016 as of December 31, 2015 as of December 31, 2014 Net assets First Deputy Director General for Financial and Economic Activity: (signature) Vinokurov Pavel Vyacheslavovich (full name) March 31,

17 Organization Taxpayer ID Number S.P. Korolev Rocket and Space Public Corporation Energia Type of Research and development activity in the field of natural sciences and technology Form as per OKUD as per OKPO Legal organizational form / Form of ownership as per Public Company Unit of measurement: RUB thousand CASH FLOW STATEMENT for January - December 2016 / Private ownership Date (day, month, year) INN as per OKVED r OKOPF/ОКFS as per OKEI Codes Item Line Code For January December, 2016 For January December, 2015 Cash flows from operating activities: Proceeds total including: from sales of products, goods, works and services of which: from sales of products, goods, works and services to subsidiaries and affiliates lease payments, license fees, royalties, commissions and other similar payments of which: lease payments, license fees, royalties, commissions and other similar payments from subsidiaries and affiliates from resale of financial investments from investors for the participation in shared construction other proceeds of which: other proceeds from subsidiaries and affiliates insurance claim Payments total 4120 ( ) ( ) including: to suppliers (contractors) for raw materials, supplies, works and services 4121 ( ) ( ) of which: to subsidiaries and affiliates for raw materials, supplies, works and services ( ) ( ) with respect to the employee compensation 4122 ( ) ( ) debenture interest 4123 ( ) ( ) corporate income tax 4124 ( ) ( ) to suppliers (contractors) for raw materials, supplies, works and services under the participation in shared construction 4125 ( ) ( ) other payments 4129 ( ) ( ) of which: other payments to subsidiaries and affiliates (52 579) (51 651) Net cash flows from operating activities

18 Cash flows from investing activities Proceeds total including: from the sale of non-current assets (except for financial investments) from the sale of shares (participatory interests) in other entities from the repayment of loans granted, sale of debt securities (rights of claim on cash against other parties) dividends, debenture interest and similar proceeds from participation in other entities other proceeds Payments total 4220 ( ) ( ) including: with respect to the acquisition, establishment, modernization, reconstruction and preparation for use of non-current assets 4221 ( ) ( ) of which: To subsidiaries and affiliates with respect to the acquisition, establishment, modernization, reconstruction and preparation for use of non-current assets ( ) ( ) with respect to the acquisition of shares (participatory interests) in other entities with respect to the acquisition of debt securities (rights of claim on cash against other parties), granting of loans to other parties 4223 ( ) ( ) of which: with respect to granting of loans to affiliated parties ( ) ( ) debenture interest included in the cost of an investment asset other payments 4229 (1 929) (1 064) Net cash flows from investing activities 4200 ( ) ( ) 18

19 Item Cash flows from financing activities: Line Code For January December, 2016 Form , p.2 For January December, 2015 Proceeds total including: borrowings monetary contributions of owners (participants) from the issue of shares, increase in participatory interests from the issue of bonds, bills and other debt securities etc other proceeds Payments total 4320 ( ) ( ) including: to owners (participants) with respect to the repurchase of shares (participatory interests) from them or their withdrawal from participation for the payment of dividends and other profit distributions to the benefit of owners (participants) 4322 ( ) ( ) with respect to the discharge (redemption) of bills and other debt securities, repayment of borrowings 4323 ( ) ( ) other payments (70) Net cash flows from financing activities Net cash flows for the accounting period Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents Effect of changes in foreign exchange rates against the Russian ruble 4490 ( ) First Deputy Director General for Financial and Economic Activity: (signature) Vinokurov Pavel Vyacheslavovich (full name) March 31,

20 RSC Energia NOTES TO FINANCIAL STATEMENTS for

21 1.1 General Information 1. General Data S.P. Korolev Rocket and Space Public Corporation Energia (hereinafter referred to as the Corporation, RSC Energia) was founded based on the Decree of the Government of the Russian Federation No. 415 dated April 29, The certificate of state registration of RSC Energia, together with a corresponding entry to the Unified State Register of Legal Entities under the main state registration No dated October 21, 2002, was issued by the Inspectorate of the Federal Tax Service of Russia No. 2 for Moscow Region. The Company is registered at the following address: 4a Lenin St., Korolev, Moscow Region, Ordinary registered non-certificated shares, State registration number A of are traded at Moscow Stock Exchange in the Third listing level. 1.2 Corporate Governance Data on Corporation Board of Directors membership as of No. Full name Position 1. Yuri Veniaminovich Vlasov Director General, OAO URSC 2. Anatoliy Anatolievich Director General, ZAO Lider Gavrilenko 3. Alexander Nikolaevich Ivanov First Deputy Director General, State Space Corporation ROSCOSMOS 4. Igor Anatolievich Komarov Director General, State Space Corporation ROSCOSMOS 5. Oleg Vladimirovich Lobanov Deputy Director General, State Space Corporation ROSCOSMOS 6. Alexander Alekseevich Medvedev First Deputy Director General, FSUE Khrunichev SR&PSC, Deputy Director General, FSUE TsNIImash 7. Andrei Sergeevich Nikitin Director General, ANO Agency for Strategic Initiatives 8. Sergei Alexandrovich Nikitin Deputy Director General, Head of Corporate Control Department, ZAO Lider 9. Alexei Viktorovich Nuzhdov Deputy Director General, ZAO Lider 10. Maxim Valerievich Petrov Director General, AO RK-AKTIVY (Assets) 11. Vladimir Lvovich Solntsev Director General, RSC Energia 21

22 Chief Executive Officer The Chief Executive Officer of RSC Energia is Director General who manages the current activities of the Corporation in the manner and within powers defined by the Federal Law on Joint Stock Companies, other legal acts of the Russian Federation, the Corporation Charter, Regulations for the Chief Executive Officer and the contract concluded with him. Information on the members of the Management Board of the Corporation as of No. Full name Post held at RSC Energia 1. Vladimir Lvovich Solntsev Director General, RSC Energia 2. Nikolai Albertovich Brukhanov General Designer for Advanced Space Complexes and Systems 3. Pavel Vyacheslavovich First Deputy Director General for Financial and Economic Activity Vinokurov 4. Yugeny Alexeyevich Yermakov Head of Department 5 DP, Chief Engineer 5. Mikhail Viktorovich Komarov Deputy Director General for Personnel and Social Policy 6. Yelena Mikhailovna Chief Accountant Korogodina 7. Alexander Alexandrovich Deputy Director General Head of Chief Project Management Office Kuznetsov 8. Mikhail Yurievich Merkulov Deputy Director General for Security 9. Eugeny Anatolievich Mikrin General Designer First Deputy Director General 10. Nikolai Anatolievich Pirogov Deputy Director General for Interaction with Government Bodies 11. Igor Sergeevich Radugin General Designer of Launch Vehicles 12. Sergei Yurievich Romanov General Designer of Manned Space Complexes 13. Viktor Ivanovich Rykov Adviser to Director General of RSC Energia 14. Sergei Anatolievich Saperov Deputy Director General for Organization-Legal Matters 15. Vladimir Alexeyevich Soloviev First Deputy General Designer for Flight Operation, Tests of Rocket and Space Complexes and Systems 16. Igor Vladimirovich Frolov General Designer of Unmanned Space Complexes and Systems 17. Sergei Yurievich Shachnev Director General, ZAO ZEM RSC Energia 22

23 1.3 Branches (Structural Units) As of December 31, 2016, the Company has 10 standalone structural units (including branches). List of Standalone Structural Units (Branches) No. Name Location KPP Activities 1 Voskhod Holiday Hotel 15, Sitniki instructional farm village, Sergiyev Posad District, Moscow Region Holiday hotel, vacation retreat, etc. 2 Vostok Holiday Hotel with Health Resort Functions Novomikhailovsky-2, Tuapse District, Krasnodar Krai Holiday hotel, vacation retreat, etc. 3 Krepost Health Resort 9 Mira Avenue, Kislovodsk Resort Town, Stavropol Krai Holiday hotel, vacation retreat, etc. 4 Baikonur Baikonur-8, Kyzylorda Region, Maintenance and operation of Republic of Kazakhstan Baikonur Cosmodrome facilities Other Standalone Structural Units No. Name Activities 1 Office of trade and catering Trade, catering 2 Office of health resorts and social facilities management Social services 3 Podlipki Health and Recreation Resort Holiday hotel, vacation retreat, etc. 4 Special department 123 to support works on projects Support of operations at Plesetsk Cosmodrome 5 6 implementation at Plesetsk Cosmodrome Special department 029 to develop AU structures, components, logistics support to assemble AU and containers for transporting SC of various applications Special department 124 to support works on Corporation projects implementation at Vostochny cosmodrome; Activity on developing AU structures, components, logistics support to assemble AU and SC transportation containers Support of operations at Vostochny Cosmodrome 4. Information on staffing number The average Corporation staffing number for 2016 was persons. The average Corporation staffing number for 2015 was persons. 23

24 5. Activity Details The main economic activity of RSC Energia is a sale of products, services and R&D using space technologies. Types of products (works, services) offered by the Corporation in the market of its main activity: research and development work on development, ground testing, testing and launch of: space manned stations; dedicated space modules; manned and cargo space vehicles; unmanned spacecraft and systems; upper stages; launch vehicles; flight control, crew training, preparation and performance of space research and experiments at orbital stations and space vehicles; introduction of space high technologies into non-space spheres of production; development of the International Space Station (ISS), its operation; launches of spacecraft (SC) using DM-type upper stages; services on commercial launches of foreign astronauts and tourists, design research, development, testing, production of a complex of prosthetic and orthopedic products and white goods and medicine products. In addition, services are provided for organization of sanatorium-resort therapy, security, communication services, and personnel management. Provided are catering services and food commodities, printing services, etc. 2. Significant Aspects of the Accounting Policy and Presentation of Information in the Financial Statements 2.1 Basis for Preparing the Financial Statements These financial (accounting) statements have been drafted based on the accounting and reporting rules applicable in the Russian Federation, in particular, the Federal Law No.402-FZ "On Accounting" dated December 6, 2011, and the Regulations on Accounting and Reporting in the Russian Federation adopted by the Decree of the Ministry of Finance of the Russian Federation No. 34n dated July 29, 1998, as well as other regulations being parts of the system regulating the accounting and reporting processes of entities in the Russian Federation, The financial statements have been prepared in accordance with the Accounting Policy, approved by the Order of the President of Corporation RSC Energia No. 654 dated December 31, Assets, Liabilities and Transactions in Foreign Currencies Should accounting transactions be made in a foreign currency, the relevant currency s exchange rate set by the Central Bank of the Russian Federation on the date of such transactions is applied. Cash on currency and deposit accounts with banks, float, including loans granted and received, credits denominated in foreign currencies, are recorded in the accounting statements in amounts calculated based on the official exchange rate. The rate amounted to 60,6569 rubles and 72,8827 rubles for 1 US dollar, and 63,8111 rubles and 79,6972 rubles for 1 Euro as of December 31, 2016 and 2015, respectively. Exchange rate differences emerged during the year with respect to transactions with assets and liabilities, 24

25 and denominated in foreign currencies, as well as its recalculation as of the reporting date, are recognized in other income and expenses. 2.3 Short-Term and Long-Term Assets and Liabilities In the Balance Sheet, the receivables and payables are recognized as short-term ones if its circulation (redemption) periods do not exceed 12 months after the reporting date or are not set. The remaining assets and liabilities specified are presented as long-term ones. Financial investments, as well as credits and loans are classified as short-term or long-term based on the expected period of their use (circulation, possession or redemption) after the reporting date. 2.4 Changes in the Accounting Policy 2016 For the purpose of executing the Order of the President of Corporation No.239 On project organization Maintenance and Current Repair of Gas Equipment and Gas Pipelines of Workshops No. 411 and 412 of ZAO ZEM RSC Energia of a new type of activity has been introduced, i.e. running service of the utility power systems and facilities The corporation creates an estimated liability for doubtful debts on a quarterly basis Due to transfer of the ownership of water supply and disposal networks to RSC Energia new activities have been opened up: - water transportation; - effluents transportation. The criterion of importance of accounting errors has been changed. The error is recognized to be important, if separately or in the aggregate with other errors for the same accounting period can affect the economic decisions of the users taken by them on the basis of the accounting statements drafted for this accounting period. The criterion for designing objects to investment assets has been changed. An investment asset shall be understood to mean a piece of property which preparation for the intended use requires a long period of time (more than 12 months) and significant expenses for acquisition, construction and (or) manufacture (above RUB 100 million). The appraisal of financial investments at writing-off has been changed. On retiring, financial investments for which the current market value is not determined, are valued at the historical cost of each retiring accounting unit of the financial investments or at an average initial cost of each accounting unit. With the retirement of assets accepted for accounting as financial investments for which the current market value is determined, their value is determined by the Corporation based on the latest assessment. The moment of reflection of the interest paid has been specified. The interest calculation due and payable to the lender (creditor) is recorded in the account evenly on the last day of each month to which they relate (regardless of the contract-stipulated payment schedule). The list of cash equivalents has been changed. The Corporation attributes the following assets to cash equivalents: deposits at short notice, deposits with a maturity of up to three months, unprofitable deposits, which are not recognized as financial investments. The Corporation annually forms the Provision for doubtful debts as of December 31 of the Accounting Period. 25

26 3.1 Segment Information 3. Disclosure of Major Indicators Pursuant to PBU 12/2010 "Segment Information", based on the analysis of sources and nature of risks associated with the Corporation s operations and profits being generated thereby, in order to group data by segments of the organizational and management structure of the internal accounting system, the information on operating segments is recognized as primary, and the information on each geographical segment is recognized as secondary. Primary information - operating segments One key operating segment may be distinguished in the Corporation s activities: - research, development and experimental work on development and operation of manned orbital complexes, launch vehicles, various classes of launch vehicles, space telecommunications, broadcasting and satellite communications complexes; other segments, including: - health resort treatment services, and children s health camp services; - trade and public catering services; - social services; - other services (security measures, staff recruitment services for subsidiaries, typographical services, etc.). Indicator Research, Development and Experimental Work Health Resort Treatment Services RUB thsd. Trade Services Social Services Other Services Corporation Total For 2016 Segment revenue Earnings (loss) from segment sales Interest receivable X Interest payable X Income from participation in other entities X Other income X Other expenses X Earnings (loss) before taxation of the segment As of December 31, 2016 Segment assets X Including non-circulating assets Assets not allocated to segments Х X - Assets total X

27 Segment liabilities X Liabilities not allocated to segments Liabilities - total As of December 31, 2015 Segment assets X Including non-circulating assets Assets not allocated to segments Х X - Assets total X Segment liabilities X Liabilities not allocated to segments X - Liabilities - total X As of December 31, 2014 Segment assets X Assets not allocated to X - segments Assets total X Segment liabilities X Liabilities not allocated to segments X - Liabilities - total X Segment revenue (income) is generated as a result of making transactions with purchasers and customers. Operations with other segments are not allowed. Income tax expenses and other similar payments are not included in the calculation of segment s earnings (loss). Interest receivable, interest payable, income from participation in other entities, other income and expenses have not been allocated between "Research, development and experimental works" and "Other services" segments due to the inexpediency of doing so, and the lack of the basis required. The mentioned income and expenses are attributed to the Corporation s operations as a whole. Segment assets primarily consist of fixed assets, construction in progress, inventory, work in progress, accounts receivable and other current assets other than deferred tax assets, financial investments and cash. Unallocated assets are not included in segment assets, as they are not directly related to reporting segments, and the required allocation basis is lacking. Segment liabilities are disclosed anything but the branches liabilities. The combined share of the net profit of companies in which the Corporation has an interest in the share capital, the total amount of investments in these companies of the Corporation is not disclosed in this section, as it is not directly related to the Corporation's segments allocated. 27

28 Secondary information geographical segments Information on geographical segments for 2016 (revenue from sales to outside customers and financial result from segment s operations) is presented in the table below: Geographical Segments Sales Revenue (without VAT) RUB, thsd. Production Cost Sales Profit Return on Sales, % Domestic market , , ,98 5,44 EU countries , , ,68 31,74 Angola , , ,19 8,97 USA , , ,56 27,90 Egypt , ,00 - Japan 8 284, , ,90 44,66 Total , , ,31 6,18 Information on geographical segments for 2015 (revenue from sales to outside customers and financial result from segment s operations) is presented in the table below: Geographical Segments Sales Revenue (without VAT) RUB, thsd. Production Cost Sales Profit Return on Sales, % Domestic market EU countries Angola USA Egypt Japan ,76 Total ,24 Revenue is presented by geographical segments in market locations. Since production facilities of the Corporation are located in the territory of the Russian Federation, assets and investments are referred to a single geographical segment distinguished based on the assets location - the Russian Federation. 3.2 Intangible Assets Accounting of intangible assets of the Corporation is performed in accordance with PBU 14/2007 "Accounting of Intangible Assets" adopted by the Decree of the Russian Ministry of Finance No. 153n dated December 27, In the accounting statements, intangible assets are presented at their historical (replacement) cost net of depreciation accumulated during the entire period of their use. The useful life of intangible assets is set with due regard to a period during which the Corporation controls the asset, legal or similar restrictions on the use of the asset, expected life of using the asset in the Corporation with the purpose to obtain economic benefits. Intangible assets of the Corporation were not revaluated in The depreciation of intangible assets is performed using the straight-line method. 28

29 Indicator Line Code Intangible Assets and Research, Development and Engineering (R&D) Expenses Intangible Assets Availability and Flow Period Opening balance Changes over a period Closing balance Acquired Disposed Depreciation Impairment Revaluation Historical Historical charged losses Historical Accumulated Historical cost 3 cost 3 cost 3 depreciation 3 cost 3 Accumulated depreciation and impairment losses 3 Accumulated depreciation and impairment losses 3 Accumulated depreciation and impairment losses Intangible assets total including: Patents, licenses, know-how, copyrights Industrial designs and models Software, databases 5100 for ( 3 270) ( 1 549) 320 ( 1 058) ( 4 008) 5110 for ( 2 448) ( 678) 113 ( 935) ( 3 270) 5101 for ( 3 266) ( 1 549) 320 ( 1 056) ( 4 002) 5111 for ( 2 445) ( 678) 113 ( 934) ( 3 266) 5102 for ( 4) ( ) ( 2) ( 6) 5112 for ( 3) 10 ( ) ( 1) ( 4) 5103 for ( -) - ( -) - ( -) ( -) 5113 for ( -) - ( -) - ( -) ( -) 29

30 Intangible Assets and Research, Development and Engineering (R&D) Expenses Historical Cost of Internally Generated Intangible Assets Indicator Line Code As of December 31, As of December 31, As of December 31, Total including: Patents, licenses, know-how, copyrights Industrial designs and models Software, databases Fully Repaid Intangible Assets Indicator Line Code As of December 31, As of December 31, As of December 31, Total including: Patents, licenses, know-how, copyrights Industrial designs and models Software, databases

31 3.3 R&D Expenses Non-current assets on separate sub-accounts of account 08 "Non-current assets" include research and development work in progress. Separate subaccounts of account 04 "Intangible assets" include finished research and development work being used in the manufacture of goods (performance of works, provision of services). An accounting unit for R&D expenses is an inventory item. An inventory item is an aggregate of expenses incurred with respect to the work performed, the results of which are independently used in the manufacture of goods (performance of works, provision of services) or for management needs The write-off of expenses is performed using the straight-line method. The period over which R&D expenses are to be written off is determined based on the expected service life of R&D results obtained. The expected service life and the expenses write-off method on each R&D subject shall be set by the Decision of the Technical Commission on the R&D results use, approved by the Project Manager. R&D expenses not providing any positive result shall be written-off to other expenses of the accounting period. In the Balance Sheet, finished R&D work being used in the manufacture of goods (performance of works, provision of services) is recognized in line 1120 "Research and development results". Balance Sheet line 1120 "Research and development results" demonstrates the amount of total expenses for finished R&D work being used in the Corporation s operations amounting to RUB thsd and RUB thsd, unfinished and unexecuted R&D work amounting to RUB thsd and RUB thsd as of December 31, 2016 and December 31, 2015, respectively. 31

32 Unfinished and Unexecuted R&D and Uncompleted Operations on Intangible Asset Acquisition Indicator Line Code Period Opening balance Changes over a period Closing balance Expenses over a period Written-off as expenses not provided any positive result Accepted for recording as intangible assets or R&D Expenses for unfinished research and development total including: R&D performed at the expense of the Corporation R&D funded out of specialpurpose financing resources 5160 for ( 0) ( ) for ( 0) ( ) for ( 0) ( ) for ( 0) ( ) for ( -) ( ) for ( -) ( ) 512 Uncompleted operations on intangible asset acquisition total including: inventions industrial designs databases, software, licenses 5180 for ( 6) ( 8 022) for ( 55) ( 3 318) for ( 6) ( 8 022) for ( 55) ( 3 312) for ( -) ( ) for ( -) ( 6) for ( -) ( -) for ( -) ( -) - 32

33 R&D Results Availability and Flow Indicator Line Code Period Opening balance Changes over a period Closing balance Disposed Part of cost written-off as Part of cost Part of cost Part of cost Acquired expenses over a Historical cost written-off as Historical cost written-off as Historical cost written-off as period expenses expenses expenses R&D total including: Assets created as a result of R&D performed at the expense of the Corporation Assets created as a result of R&D funded out of special-purpose financing resources 5140 for ( -) ( ) ( -) ( -) 5150 for ( -) ( ) ( -) ( -) 5141 for ( -) ( ) ( -) ( -) 5151 for ( -) ( ) ( -) ( -) 5142 for ( -) ( ) ( -) ( -) 5152 for ( -) ( ) ( -) ( -) 33

34 3.4 Fixed Assets Fixed assets include assets conforming to the requirements of the Russian Accounting Principle "Accounting of fixed assets" (PBU 6/01) adopted by the Decree of the Russian Ministry of Finance No. 26n dated March 30, 2001, and accepted for recording as appropriate from the time of their putting into operation. In the accounting statements, fixed assets are presented at their historical (replacement) cost net of depreciation accumulated during the entire period of their use. As of December 31, 2016, the land plots owned by RSC Energia were revaluated. The depreciation of the fixed assets acquired and constructed prior to January 1, 2002 is performed based on uniform depreciation rates approved by the Decree of the USSR Council of Ministers No "On Uniform Depreciation Rates for the Full Recovery of Fixed Assets of the USSR National Economy" dated October 22, 1990, and of those acquired on or after January 1, 2002 at rates calculated based on estimated useful lives thereof. The useful life of fixed assets is established in accordance with the Classification of Fixed Assets, approved by the Decree of the Government of the Russian Federation No. 1 dated January 1, The depreciation is performed using the straight-line method. Assets with a useful life exceeding 12 months are included in the inventory, provided that their historical cost is below RUB 40 thsd. per unit. As of December 31, 2016, the depreciated cost of fixed assets available on the Corporation s books amounted to RUB thsd. 34

35 Fixed Assets Fixed Assets Availability and Flow Indicator Fixed assets (excluding incomebearing investments in tangible assets total including: Buildings Structures Transfer devices Machinery and Equipment Transport facilities Production and household equipment Perennial plantings Land plots Other fixed assets Line Code Period Opening balance Changes over a period Closing balance Acquired Disposed Depreciation Revaluation Historical cost 3 Accumulated depreciation 6 Historical cost 3 Accumulated depreciation 6 charged Historical cost 3 Accumulated depreciation 6 Historical cost 3 Accumulated depreciation for ( ) ( ) ( ) ( ) 5210 for ( ) ( ) ( ) ( ) 5201 for ( ) ( ) ( ) ( ) 5211 for ( ) ( ) ( ) ( ) 5202 for ( ) ( ) ( ) ( ) 5212 for ( ) ( ) ( ) ( ) 5203 for ( ) ( 5 886) ( ) ( ) 5213 for ( ) ( ) 371 ( ) ( ) 5204 for ( ) ( ) ( ) ( ) 5214 for ( ) ( ) ( ) ( ) 5205 for ( ) ( ) ( ) ( ) 5215 for ( ) ( ) ( ) ( ) 5206 for ( ) ( 4 343) ( 6 824) ( ) 5216 for ( ) ( 9 831) ( 5 948) ( ) 5207 for ( 10 ) - ( 0 ) 0 ( - ) ( 10 ) 5217 for ( 10 ) - ( 0 ) 0 ( - ) ( 10 ) 5208 for ( - ) ( ) - ( - ) ( - ) 5218 for ( ) ( ) - ( - ) ( - ) 5209 for ( 5 691) 303 ( 9 ) 9 ( 303) ( 5 985) 5219 for ( 5 549) 152 ( 10 ) 10 ( 152) ( 5 691) 35

36 Indicator Line Code Period Opening balance Changes over a period Closing balance Acquired Disposed Depreciation Revaluation Historical cost 3 Accumulated depreciation 6 Historical cost 3 Accumulated depreciation 6 charged Historical cost 3 Accumulated depreciation 6 Historical cost 3 Accumulated depreciation 6 Accounted as a part of income-bearing investments in tangible assets total including: Property provided for commercial rent Property provided for commercial rent 5220 for ( ) 0 ( 247) 152 ( 8 254) ( ) 5230 for ( ) 266 ( 1 588) 66 ( 8 019) ( ) 5221 for ( ) ( 247) 152 ( 8 254) ( ) 5231 for ( ) 266 ( 1 588) 66 ( 8 019) ( ) 5222 for ( - ) - ( - ) - ( - ) ( - ) 5232 for ( - ) - ( - ) - ( - ) ( - ) 36

37 Change in the Value of Fixed Assets as a Result of Further Construction, Further Equipping, Reconstruction and Partial Liquidation Indicator Line Code Increase in the value of fixed assets as a result of further construction, further equipping, reconstruction total 5260 For For including: Buildings 5261 Structures Transfer devices Machinery and equipment Transport facilities 5265 Production and household equipment 5266 Perennial plantings 5267 Land plots 5268 Other fixed assets 5269 Decrease in the value of fixed assets as a result of further construction, further equipping, reconstruction - total 5270 including: Buildings 5271 ( 0) ( 0) ( ) ( ) Structures 5272 ( ) ( ) Transfer devices 5273 ( ) ( ) Machinery and equipment 5274 ( ) ( ) Transport facilities 5275 ( ) ( ) Production and household equipment 5276 ( ) ( ) Perennial plantings 5277 ( -) ( -) Other fixed assets 5278 ( ) ( ) 37

38 Other Use of Fixed Assets Line Code As of December 31, As of December 31, As of December 31, Leased out fixed assets held on the balance sheet Leased out fixed assets held on off-balance-sheet 5281 accounts Leased fixed assets held on the balance sheet Leased fixed assets held on off-balance-sheet accounts Real estate accepted for operation and in use 5284 undergoing the state registration Mothballed fixed assets Other use of fixed assets (pledge, etc.)

39 3.5 Construction in Progress Uncompleted capital investments include construction in progress, including fixed assets (line 1150) and other non-current assets (line 1190): Other Non-current Assets Balance Sheet line 1190 Other non-current assets include: - Advances paid out for capital investments as of December 31, 2016 amounted to RUB thsd, December31, 2015 amounted to RUB thsd. - expenses undertaken in connection with future construction project contract works, which are covered by the cost of projects under construction, included in subsidiary account Organization of construction work as of December 31, 2016 amounted to RUB thsd; December 31, 2015 amounted to RUB thsd; - uncompleted capital outlays for housing projects included in subsidiary account Housing projects as of December 31, 2016 amounted to RUB thsd; as of December 31, 2015 amounted to RUB thsd; - value-added tax for contract works in housing projects, included in subsidiary account VAT for contract works in housing projects as of December 31, 2016 amounted to RUB thsd; as of December 31, 2015 amounted to RUB thsd; - investment contribution under contract No.ID of SUE PI «MOSP» included in subsidiary account Accounts receivable and payable for creation of non-current assets in organization as of December 31, 2015 amounted to RUB thsd. Total amount of other non-current assets as of December 31, 2016 is RUB thsd, as of December 31, 2015 is RUB thsd. 39

40 Indicator Construction in progress and uncompleted operations on fixed asset acquisition, modernization, etc. - total including: Acquisition, construction and creation of fixed assets Line Code Period Capital Investments in Progress Opening balance Expenses over a period Changes over a period Closing balance Accepted for recording as fixed Written-off assets, or cost increase 5240 for ( ) ( ) for ( ) ( ) for ( 9 072) ( ) for ( ) ( ) Modernization and reconstruction 5242 for ( ) ( ) for ( ) ( ) Acquisition of land plots 5243 for ( 22) ( 3 088) for ( ) ( ) 0 etc for ( 190) ( ) for ( ) ( 3 701) Housing construction 5245 for ( 9 028) ( 593) for ( ) ( ) Advances paid out for capital investments 5246 for ( ) ( ) for ( ) ( )

41 3.6 Financial Investments Financial investments with non-determined market values are accounted at their historical costs. The historical cost of financial investments acquired for a fee is recognized as the amount of actual expenses for its acquisition, except for value added tax and other compensated taxes. The analytical accounting of financial investments is performed by investment groups and security types. Disposed financial investments not having a market value are recorded at historical cost of each item. Income and expenses from financial investments are recognized in other income and expenses. Financial investments are presented net of the accrued reserve for impairment of financial investment objects, with respect to which the signs of sustained reduction in their values have been detected. In 2016, a reserve for impairment of long-term financial investments were created for deposits in the amount of RUB 0,6 thsd, and a reserve for depreciation of shares to the amount of RUB thsd. During the accounting period the reserve for depreciation of shares was restored, and the reserve of OJSC Fonderservisbank was recognized in other revenues of the Corporation to the amount of RUB 670 thsd due to the write-off of 1 share from the Corporation's separate account. The reserve amounted to RUB thsd and thsd as of December 31, 2016 and 2015, respectively. Indicator Other Use of Financial Investments Line Code As of December 31, As of December 31, As of December 31, Pledged financial investments - total including: bills etc. Financial investments transferred to third parties (except through sale) - total including: bills etc. Other use of financial investments

42 Indicator Line Code Financial Investments Financial Investments Availability and Flow Period Opening balance Changes over a period Closing balance Historical cost Acquired Disposed (repaid) Interest accrual Established reserves Historical cost Accumulated adjustments 7 Historical cost Accumulated adjustments 7 (including bringing the historical cost to the nominal value) Current market value (impairment losses) Accumulated adjustments 7 Long-term - total 5301 for ( ) ( 1 267) ( ) ( ) 5311 for ( ) ( ) 0 - ( ) ( ) including: 5302 for (18 874) ( 200) 0 - ( ) ( ) Stocks and shares in subsidiaries 5312 for ( 5) 0 - (16 874) ( ) Stocks and shares 5303 for ( ) in affiliates 5313 for ( ) Other 5304 for ( ) ( 1 067) (1) ( ) 5314 for ( ) 1 ( ) - - (88 222) ( ) Loans granted 5305 for ( ) for ( ) Short-term total 5305 for ( ) ( 5 000) - - ( ) ( ) ( ) 5315 for ( ) ( 0) - - ( ) ( ) including: 5306 for ( ) Debt securities (bonds, bills) 5316 for ( ) Loans granted 5307 for ( ) ( ) - - ( ) ( ) ( ) 5317 for ( ) ( ) - - ( ) ( ) Other 5308 for ( 5 000) for ( ) Etc ( -) Financial 5300 for ( 6 267) ( ) Investments - total 5310 for ( )

43 3.7 Inventory Inventory is accepted for recording at its actual cost (in the amount of actual expenses for its acquisition). The valuation of writing-off the inventory is carried out at an average cost with the exception of assets with an asset depreciation range exceeding 12 months and with a historical cost no more than rubles per unit. The method of calculating the average value is an average rolling valuation per nomenclature, warehouse, work order. The valuation of writing-off the assets with an asset life exceeding 12 months and with a historical cost no more than 40,000 rubles per unit is carried out using FIFO method. As of December 31, 2016, the Corporation doesn t have any inventory, which has become obsolete, lost its historical cost in whole or in part, or the current market price of which has decreased, on its books. Therefore, as of 31 December 2016, the reserve for tangible assets impairment was not created by the Corporation. 3.8 Special clothing and special equipment Special tools and special devices include hardware with individual (unique) properties and designed for production (release) of specific types of products (works, services). Hardware designed to produce generic types of products (works, services) are not taken into account as a special tool and special devices. Special equipment includes facilities reusable in production, which enable to perform specific (non-standard) technological operations. Technological equipment used to perform mechanical, thermal, galvanic and other processing of parts and products, standard test equipment for checking purchased semi-finished products, components and materials, as well as other general-purpose equipment is not considered as special equipment. Special clothing includes individual protection gear for the Corporation employees and technological clothing made of special fabrics to protect air space against contamination caused by personnel working in clean rooms. Special clothing includes special clothes, special footwear and safety devices. The timeframe of value-added use of special equipment is established depending on the type of equipment and its purpose, based on the statutory standards of the legislation of the Russian Federation stipulated in the Generic Industry Standards for free issue of special clothing, special footwear and other protective equipment, as well as in the Rules for providing workers with special clothing, special footwear and other protective means approved by the Decree of the Ministry of Labor and Social Development of the Russian Federation No. 51 of December 18, For special clothing as a technological one the timeframe of value-added is determined in accordance with the requirements of the National Standard of the Russian Federation Clean rooms. Technological clothing. General requirements GOST R When special clothing is handed over into operation, which normative period of use does not exceed 12 months, non-recurrent write off is effected for manufacturing expenses. When special clothing is handed over into operation, which normative period of use does not exceed 12 months, its cost is written off to manufacturing expenses evenly (in a linear fashion) during the period of use. 43

44 3.9 Expenses, Work in Progress and Finished Goods Work in progress is evaluated based on total actual expenses incurred, including the appropriate portion of general expenses. General expenses are monthly allocated to orders in proportion to the increase in values of items composing the "Payroll expenses" section, Direct Manufacturing Expenses, over the accounting month. The administrative expenses are allocated in accordance with guidebook Matrix of primary function cost categorization for a group of administrative expenses. Due to the corrections as of December 31, 2015, line 1210 Inventory of the balance sheet was increased to include the amount of RUB thsd with regard to expenses for work in process Prepaid Expenses Costs incurred by the Corporation over the accounting period though related to future periods are recognized as prepaid expenses. Prepaid expenses comprise as follows: Payment for the non-exclusive right to use software products; Expenses related to the construction work arrangement. The mentioned expenses are evenly written-off as intended or based on special calculations over the periods they pertain to. The expenses of the future periods as of December 31, 2016 amounted to RUB thsd are added to line Other in Table Inventory. Inventory Availability and Flow. 44

45 Indicator Line Code Inventory Inventory Availability and Flow Period Opening balance Changes over a period Closing balance Production cost Reserve for impairment Disposed Impairment losses Production cost Proceeds and expenses Production cost Reserve for impairment Inventory turnover between groups (types) Reserve for impairment Inventory - total including: Raw materials and supplies Work in progress Prepaid expenses Finished goods and goods for resale 5400 for ( ) ( ) ( ) X ( ) 5420 for ( ) ( ) X ( ) 5401 for ( -) ( ) ( -) 5421 for ( -) ( ) ( -) 5402 for ( ) ( ) ( ) ( ) 5422 for ( ) ( ) ( ) 5403 for ( -) - ( -) ( -) 5423 for ( -) - ( -) ( -) 5404 for ( -) ( ) ( -) 5424 for ( -) ( ) ( -) Other 5405 for ( -) ( ) ( -) 5425 for ( -) ( ) ( -) etc. 45

46 Pledged Inventory Indicator Inventory unpaid as of the reporting date total including: Pledge agreements Line Code As of December 31, As of December 31, As of December 31, Inventory pledged under contract total including: Raw materials and supplies - - Work in progress Finished goods and goods for resale - - Other

47 3.11 Cash Pursuant to the Decree of the Russian Ministry of Finance No. 66n "On Forms of Accounting Reports of Organizations" dated July 2, 2010, and para 18 of PBU 23 "Cash Flow Statement", cash flow statement indicators shall be indicated in the currency of the Russian Federation - rubles. Cash flow values in a foreign currency shall be converted into rubles at the official exchange rate established by the Central Bank of the Russian Federation on the date of payment effecting or receipt. Line 1250 Cash and cash equivalents reflects the Corporation cash amounted to RUB thsd as of December 31, 2016 including: On account 50 "Cash account" amounted to RUB thsd; On account 51 Payment accounts amounted to RUB thsd; On account 52 Currency accounts amounted to RUB thsd; On account 55 Special bank accounts amounted to RUB thsd; On account 57 Transfers in transit amounted to RUB thsd. Line 1250 Cash and cash equivalents reflects the Corporation cash amounted to RUB thsd as of December 31, 2015, including: On account 50 "Cash account" amounted to RUB thsd; On account 51 Payment accounts amounted to RUB thsd; On account 52 Currency accounts amounted to RUB thsd; On account 55 Special bank accounts amounted to RUB thsd; On account 57 Transfers in transit amounted to RUB thsd Within the framework of the State Defense Order the Corporation has monetary assets with a limited access for use as required by Federal Law No.275-FZ On State Defense Order amounted to RUB thsd as of December 31, 2016 and RUB thsd as of December 31, Accounts Receivable Trade receivables are determined based on the prices specified in agreements between the Corporation and purchasers (customers), including VAT. Due to the correction as of December 31, 2015 in line 1230 Accounts receivable of the balance sheet the short-term loan receivable (advances paid) is decreased to the amount of RUB thsd. Accounts receivable include advances for future settlements paid to other entities under the agreements. As of December 31, 2016, the amount of advances is RUB thsd, and the reserve for advances paid equaled to RUB thsd. 47

48 Accounts Receivable Availability and Flow Indicator Long-term accounts receivable - total including: Trade receivables Advances paid Other accounts receivable Short-term accounts receivable total including: Trade receivables Advances paid Other accounts receivable Total Line Code Period Opening balance Changes over a period Closing balance Accounted under contract Reserve for doubtful debts Through business transactions (amount of debt under a transaction, operation) 8 Acquired Disposed Reclassificati Interest, penalties and other accruals due 8 Repayment Write-off to the financial result 8 Reserve recovery on from longterm receivables to short-term receivables Accounted under contract Reserve for doubtful debts 5501 for (34 576) ( ) ( -) ( ) ( ) 5521 for (28 944) ( ) ( -) ( ) ( ) 5502 for ( 9 550) ( ) ( ) ( 229) ( ) 5522 for (28 944) ( ) ( ) ( ) ( 9 550) 5503 for ( -) ( ) ( -) - ( ) ( ) 5523 for ( -) ( ) ( -) - ( ) ( -) 5504 for (25 026) ( ) ( -) ( 6 235) ( 0) 5524 for ( -) ( 1 312) ( -) - ( -) ( ) 5510 for ( ) ( ) ( 1 020) ( ) 5530 for ( ) ( ) ( 209) ( ) 5511 for ( ) ( ) ( ) ( ) 5531 for ( 231) ( ) ( ) ( ) 5512 for ( ) ( ) ( 339) ( ) 5532 for (91 613) ( ) ( 1) ( ) 5513 for ( ) ( ) ( 681) ( ) 5533 for ( ) ( ) ( 208) ( ) 5500 for ( ) ( ) ( 1 020) X ( ) 5520 for ( ) ( ) ( 209) X ( ) 48

49 Overdue Accounts Receivable Indicator Line Code As of December 31, As of December 31, As of December 31, Accounted under contract Book value Accounted under contract Book value Accounted under contract Book value Total including: - Trade receivables Advances paid Other accounts receivable

50 3.13 Capital and Reserves The authorized capital of the Corporation as of December 31, 2016 and December 31, 2015 equals to RUB thsd and consists of the Corporation-issued and fully paid ordinary shares totaling shares. Based on the results of work for 2015, dividends amounted to RUB thsd were distributed and transferred in The Charter of the Corporation provides for the establishment of a reserve fund in the amount of at least 15% of the authorized capital. The fund is formed by means of compulsory annual deductions equal to 15% of the net profit. The reserve fund of the Corporation is completely formed. As of December 31, 2015 in line 1370 Retained earnings (uncovered loss) the amount was decreased by RUB thsd. The reason for making changes is disclosed in section 3.16 Taxation Loans and Credits Expenses for loans and credits received are recognized as costs of the period, during which they have been incurred (current expenses), and are included in other expenses. Additional expenses associated with obtaining loans and credits are included in other expenses as they are paid. Interest on borrowings is evenly (monthly) accrued, and is recognized as other expenses in the accounting periods, which these accruals pertain to. The Corporation transfers long-term payables on loans and credits received to short-term payables at the time when there are 365 days left to repay the principals of such borrowings pursuant to loan agreements. Line 1410 Borrowings of the balance sheet demonstrates bank loan proceeds with maturity exceeding 365 days as of December 31, The line 1510 "Borrowings" demonstrates Corporation s debts with maturity not exceeding 365 days under loan agreements with banks as of December 31,

51 2015 RUB thsd Changes over a period Indicator Korolev Sberbank branch 2570, / Korolev Sberbank branch 2570, / Korolev Sberbank branch 2570, / Unamortized Principle Balance at the beginning of year Received for a year (principal) Receipt Interest, penalties and other accruals due to the loaner for a year Repaid for a year (principal) Retirement Paid % for a year Unamortized Principle Balance at the end of year Balance of accrued interest at the end of a year Credit balance of credit agreement at the end of the year Amortization period (year) JSB "Russia", /01/161/ TOTAL: Including: Long-term credits total Korolev Sberbank branch 2570, / Korolev Sberbank branch 2570, / Korolev Sberbank branch 2570, / JSB "Rossiya", /01/161/ Short-term credits total Korolev Sberbank branch 2570, / Korolev Sberbank branch 2570, / Korolev Sberbank branch 2570, / JSB "Rossiya", /01/161/

52 2015 RUB thsd Changes over a period Indicator AO "Rossiya", Korolev branch, 04/04/001/2014* Unamortized Principle Balance at the beginning of year Received for a year (principal) Receipt Interest, penalties and other accruals due to the loaner for a year Retirement Repaid for a year (principal) Paid % for a year Unamortized Principle Balance at the end of year Balance of accrued interest at the end of a year Credit balance of credit agreement at the end of the year Amortization period (year) TOTAL: Including: Long-term credits total AO "Rossiya", Korolev branch, 04/04/001/2014* Short-term credits total AO "Rossiya", Korolev branch, 04/04/001/2014*

53 2016 Changes over a period RUB thsd Indicator Unamortized Principle Balance at the beginning of year Received for a year (principal) Receipt Interest, penalties and other accruals due to the loaner for a year Retirement Repaid for a Paid % for a year (principal) year Unamortized Principle Balance at the end of year Balance of accrued interest at the end of a year Credit balance Amortization of credit period (year) agreement at the end of the year PC Sberbank, / PC Sberbank, / PC Sberbank, / PC Sberbank, / PC Sberbank, / AO "Rossiya", /01/161/ AO "Rossiya", /01/036/ TOTAL: Long-term credits total PC Sberbank, / PC Sberbank, / PC Sberbank, / PC Sberbank, / Short-term credits total PC Sberbank, / PC Sberbank, / AO "Rossiya", /01/161/ AO "Rossiya", /01/036/

54 3.15 Accounts Payable In 2015, as a result of the court proceedings at the suit of the Ministry of Defense of the Russian Federation on recovery of the penalty amounted to RUB thsd for failure to perform obligations under the state contract on its due date, a decision was taken to exactly sustain the claim. Thus, the Corporation documented expenses for payment of penalties in the amount of RUB thsd in the financial statements for As of December 31, 2015 in line 1520 «Accounts Payable» the following corrections were made: - trade accounts payable increased to the amount of RUB thsd; - accounts payable in other accrued expenses increased to the amount of RUB thsd. 54

55 Accounts Payable Availability and Flow Indicator Long-term accounts payable - total including: Trade payables Other Advances received Line Code Period Opening balance Changes over a period Acquired Disposed Reclassification Through business Interest, penalties Repayment Write-off to the from long-term transactions and other accruals financial result 8 payables to shortterm payables (amount of debt due 8 under a transaction, operation) 8 Closing balance 5551 for ( ) ( 68) ( ) for ( ) ( -) ( -) for ( ) ( 68) ( -) for ( -) ( -) ( -) for ( -) ( -) ( -) for ( -) ( -) ( -) 5554 for ( ) ( -) ( ) for ( ) ( -) ( -) Short-term accounts payable - total including: Trade payables Advances received Other accounts payable 5560 for ( ) ( 2 942) for ( ) ( 0) for ( ) ( ) for ( ) ( ) for ( ) ( ) for ( ) ( ) for ( ) ( 2 942) for ( ) ( ) Total 5550 for ( ) ( 3 010) X for ( ) ( 0) X

56 Overdue Accounts Payable Indicator Line Code As of December 31, As of December 31, As of December 31, Total including: 5591 Trade payables Other

57 3.16 Taxation Value-added tax The value added tax (VAT) on goods, products, works and services sold is calculated as of the date of actual shipment (delivery) of such goods, products, works and services. Income tax For the purposes of the income tax calculation, income is recognized in the reporting (tax) period, during which it occurred, regardless of the actual receipt of cash or any other property (works, services), and (or) property rights (accrual basis). The amount of provisional profits tax income came to RUS thsd for The amount of provisional profits tax expense was corrected to the amount of RUS thsd and came to RUS thsd for In 2015, as a result of the court proceedings at the suit of the Ministry of Defense of the Russian Federation on recovery of the penalty amounted to RUB thsd for failure to perform obligations under the state contract on its due date, a decision was taken to exactly sustain the claim. Thus, the Corporation disclosed expenses in line 2350 Other expenses of the Profit and Loss Statement for payment of penalties in the amount of RUB thsd in the financial statements for For this reason, the provisional profits tax expense decreased by RUB thsd. The current income tax recognized in the line 2410 of the Profit and Loss Statement equaled to RUB thsd. in 2016, RUB thsd in Deferred Taxes In its accounting and reporting documents, the Corporation discloses deferred tax assets and liabilities, as well as permanent tax assets and liabilities, i.e. the amounts, which may influence the income tax value in the current and/or forthcoming accounting periods. Permanent Differences Permanent differences have emerged in the Corporation s accounting as a result of the excess of actual expenses included in the accounting earnings (loss) calculation over expenses accepted for tax purposes, with respect to which certain cost restrictions are provided, and other differences. The sum of permanent tax liabilities (assets) calculated based on permanent differences is recorded in the line 2421 of the Profit and Loss Statement in 2016 and amounted to RUB thsd and recorded in the line 2421 in 2015 and amounted to RUB thsd, respectively. Deductible Temporary Differences In 2016, deductible temporary differences in the amount of RUB thsd emerged as a result of as follows: recognition of targeted funding in records for accounting and tax purposes; recognition of service sector losses in records for accounting and tax purposes; recognition of other income and expenses in records (including the estimated liability) for accounting and tax purposes. 57

58 Changes in deferred tax assets are shown in the line 2450 of the Profit and Loss Statement and equaled to RUB thsd in 2016, and RUB thsd in Taxable Temporary Differences In 2016, taxable temporary differences in the amount of RUB thsd emerged as a result of as follows: evaluation of work in progress in records for accounting and tax purposes; recognition of R&D expenses in records for accounting and tax purposes; depreciation of fixed assets in records for accounting and tax purposes; recognition of other income and expenses in records for accounting and tax purposes. Changes in deferred tax liabilities are shown in the line 2430 of the Profit and Loss Statement in the amount of RUB thsd in 2016 and RUB thsd in Deferred Revenue As of December 31, 2016, the Balance Sheet line 1530 Deferred Revenue indicates the amount of target funding received equal to RUB thsd. In the accounting period R&D expenses were recognized to the amount of RUB thsd for the Ministry of Education and Science of Russia. R&D expenses to the amount of RUB ,2 thsd and amortization expenses for the parking lot received from ZAO ZEM RSC Energia to the amount of RUB 3,4 thsd were written off. In the accounting period, monetary assets were received from the Ministry of Investments and Innovations of Moscow Region to the amount of RUB thsd. As of December 31, 2015, the Balance Sheet line 1530 Deferred Revenue indicates the amount of target funding received equal to RUB thsd Recognition of Income (Revenue) Revenue from the provision of services (performance of works) is recognized as services are provided to customers (or upon the works completion) and payment documents are submitted to them. It is recorded in accounts net of value added tax, excises and similar payments. Income from ordinary activities includes receipts from the sale of products and goods, incomings associated with performance of works, provision of services. Incomings relating to assignment of Corporate assets for value for temporary use (temporary possession and use) are revenues from ordinary activities. Other incomes of the Corporation include: - Incomes associated with granting of rights for value originated from patents for inventions, industrial designs and other types of intellectual property of the Corporation; - Incomes from participation in the authorized capitals of other organizations; - Proceeds for fixed assets, inventories, financial investments, foreign exchange; - Interest received for making available for use the Corporation's assets; - Difference between the historic and nominal value of the securities. The Corporation recognizes revenue from the performance of works, provision of services, selling of goods 58

59 with a long manufacturing cycle in its accounts upon the completion of such works, services, or goods manufacture in general Production Expenses Indicator Line Code For For Material costs Payroll expenses Social benefit costs Depreciation Other expenses Total by elements Change in balances (increase [+], decrease [-]): Work in progress Finished products Total expenses for ordinary activities Other Income and Expenses RUB thsd. Other income / expenses Income and expenses related to compensation of losses of Corporation Earnings and losses of previous years identified in the reporting year Income Expenses Income Expenses Exchange and sum differences Exchange differences under contracts in conventional units Additional Corporation staff expenses (oneoff bonuses, material aid, etc.) Expenses for works and services under terminated or non-concluded agreements, works performed at the expense of the Corporation Bank services Sale of fixed assets Sale of other assets Expenses associated with obtaining loans and credits Reserves for doubtful debts Reserves for impairment of financial investments Reserve for reduction in values of nonmonetary physical things Fines, penalties, forfeits, taxes and charges paid out of Corporation s funds Income from the recovery of the unused reserve for doubtful debts

60 Income from the recovery of the unused reserve for impairment of financial investments Income from the recovery of the unused reserve for impairment of tangible assets Saves on investment project Provision for warranty service Other income (expenses) Accruals and refund of sums by judicial decision Total other income / expenses Procedure of Recognizing Commercial and Administrative Expenses Administrative expenses include expenses, which are not related to industrial or commercial activities of the enterprise: for human resources, legal department; lighting and heating of non-production facilities, as well as for business trips, communication services and other similar expenses. Administrative expenses are accounted for in sub-account to separate orders in terms of the cost items. Expenses for the sale of goods are commercial expenses and are written off in full in the debit of account 90 "Sales". Tracking of expenses for the sale of goods is kept on account 44 Expenses for sale under the cost items. Administrative expenses for 2016 equaled to RUB thsd. Administrative expenses for 2015 equaled to RUB thsd Earnings Per Share As of December 31, 2015 line 2400 Net profit (loss) was corrected. The earnings was reduced by RUS thsd and amounted to RUS thsd. The average weighted number of outstanding ordinary shares is shares and remained unchanged during The basic earning per share amounted to RUB 385, that RUB 140 less as compared to the previous earning. As of December 31, 2016 the loss per share amounted to RUB A loss of RUB thsd was used for calculation, and the average weighted number of outstanding ordinary shares amounted to shares. During 2016 a number of ordinary shares remained unchanged. 60

61 The Profit and Loss Statement does not indicate diluted earnings per share as the Corporation does not have any convertible securities and contracts on ordinary share sale/purchase from its issuer on the books Security Indicator Line Code As of December 31, As of December 31, As of December 31, Received - total including: Pledge Bank guarantee agreement, surety agreement 5802 Granted total including: Pledge Bank guarantee agreement, surety agreement

62 4.25 Government Assistance Indicator Line code For For Budgeting funds received total Including: 5901 Recurrent costs - - Investments in non-current assets Opening balance Received for the year Returned for the year Closing balance Public budget loan total ( -) ( -) - Including: ( -) (objective) ( -) - etc. - - ( -) - Notes: 1. The accounting year is indicated. 2. The previous year is indicated. 3. In case of reapprisal column Historical cost demonstrates current market value or current (replacement) cost. 4. The reporting date of the reporting period is presented. 5. The year preceding the previous year is indicated. 6. Nonprofit organization entitles column Accumulated amortization and Accrued amortization as Accumulated depreciation and Accrued depreciation 7. Integrated correction is determined as: A difference between the historical and current market values for financial investments, which can determine the current market value; Difference accrued during the circulation period between the historical cost and nominal value for debt security, which cannot determine the current market value; Value of investment depreciation reserve created at the previous balance sheet date, for financial investments, which do not determine the current market value. 8. The data is released by deducting the payables received and redeemed (written-off) within one accounting period. 9. The data is released by deducting the payables received and redeemed (written-off) within one accounting period Related Parties The principal shareholder of the Corporation is OAO URSC. OAO URSC owns 38,22052% of shares of RSC Energia. Since December 19, 2016, blocks of shares of RSC Energia amounted to 3,16837% transferred to ZAO ZEM RSC Energia and 17,42628% transferred to AO IC Razvitiye are also in trust management (TM). 62

63 Profile of parent company of RSC Energia # Name of company Parent company Participation as of December 31, 2016, % Direct Indirect Total RSC Energia State Corporation 58,82 58,82 Roscosmos 2 RSC Energia OAO URSC 38,22 3,17 TM 17,43 TM 38,22 3,17 TM 17,43 TM Affiliates of RSC Energia recognized as such under Art item 2 (3) of the Tax Code of the Russian Federation through OAO URSC as of December 31, 2016 # Name of affiliate Basis on which a party is recognized as affiliated party (Tax Code of the Russian Federation) OAO URSC Article 105.1, item 2 (1,3,4) 1 AO NPO Energomash Article 105.1, item 2 (3) 2 AO ISS Article 105.1, item 2 (3) 3 AO NPK SPP Article 105.1, item 2 (3) 4 AO Corporation VNIIEM Article 105.1, item 2 (3) 5 AO Russian Space Systems Article 105.1, item 2 (3) 6 AO GRTs Makeeva Article 105.1, item 2 (3) 7 AO IGGK Mashpribor Article 105.1, item 2 (3) 8 AO Corporation Compomash Article 105.1, item 2 (3) 9 PC NPO Iskra Article 105.1, item 2 (3) 10 AO ММZ Article 105.1, item 2 (3) 11 AO Krasmash Article 105.1, item 2 (3) 12 PC Proton-PМ Article 105.1, item 2 (3) 13 AO KBKhA Article 105.1, item 2 (3) Affiliates of RSC Energia recognized as such under Art item 2 (3) of the Tax Code of the Russian Federation through State Corporation Roscosmos as of December 31, 2016 State Corporation Roscosmos Article 105.1, item 2 (1,3,4) 1 AO Corporation Strategic Control Centers Article 105.1, item 2 (3) 2 OAO Glavcosmos Article 105.1, item 2 (3) 3 AO SKhZ Article 105.1, item 2 (3) 4 OAO Turbonasos Article 105.1, item 2 (3) 5 AO NIIMP - K Article 105.1, item 2 (3) 6 AO TsKB Geophysika Article 105.1, item 2 (3) 7 OAO Bazalt Article 105.1, item 2 (3) 8 ZAO PO Cosmos Article 105.1, item 2 (3) Information on the Board of Directors and Management Board of the Corporation is given in paragraph 1.2 of the present commentary. 63

64 Companies in which the Corporation has an interest in the authorized capital Name Place of registration / location A list of companies in which RSC Energia has an overall control Authorized Capital Corporation s participatory interest as of December 31, 2016 Corporation s participatory interest as of December 31, 2016 (%) Income from participation for 2015, RUB thsd ZAO ZEM RSC 4A Lenin St. Korolev, RUB thsd. RUB thsd Energia Moscow Region ZAO VKB RSC 26B Zemetsa St., Samara RUB thsd. RUB thsd. 100 Energia AO IK Razvitie 4A Lenin St., Korolev, RUB thsd. RUB thsd Moscow Region LLC RSC Energia Finance 4A Lenin St., Korolev, Moscow Region RUB 500 thsd. RUB 500 thsd AO Teplo RSC Energia LLC OIME ZAO BELROSSAT LLC Energia SAT ZAO Energia- Telecom 4A Lenin St., Korolev, Moscow Region 4A Lenin St., Korolev, Moscow Region Office 416, 15 bldg. 5, P. Brovki St., Minsk 1a, Grabina St., Korolev, Moscow Region 4A Lenin St., Korolev, Moscow Region RUB ,4 thsd. RUB ,4 thsd RUB ,3 RUB ,3 100 thsd. thsd. $ $ RUB thsd. RUB thsd RUB thsd. RUB 501,0 thsd. 50,1 - List of other affiliates in which RSC Energia is a shareholder (participant) with the participatory interest in the authorized capital exceeding 20% Name Place of registration / location OAO Space Regatta Consortium Authorized Capital Corporation s participatory interest as of December 31, 2016 Corporation s participatory interest as of December 31, 2016 (%) Income from participation for 2015, RUB thsd A Lenin St., Korolev, RUB 100 thsd. RUB 30 thsd Moscow Region OAO NPK REKOD 40 / 6 bldg.1, 3rd proezd Maryiny Roshchi, Moscow RUB thsd. RUB thsd. 26,57-64

65 List of other affiliates in which RSC Energia is a shareholder (participant) with the participatory interest in the authorized capital exceeding 2% Name Place of registration / location Limited liability company Energia- Cert Authorized Capital Corporation s participatory interest as of December 31, 2016 Corporation s participatory interest as of December 31, 2016 (%) Income from participation for 2015, RUB thsd A Lenin St., Korolev, RUB 100 thsd RUB 19,5 thsd 19,5 - Moscow Region Corporation ILS International Launch Services, Inc. (ILS International Services, Inc.)_ Open joint-stock company Gazprom space systems OAO Gazprom space systems Sea Launch S.a.r.l. (SEA LAUNCH S.A.R.L.) Closed joint stock company Certification Center for Rocket and Space Technology (ZAO IsSKT) Registered office: Wilmington, Delaware, Name of Agent registered at the address of the registered office "Si Ti Corporation" 77B, Moscow St., Schelkovo, Moscow Region 58, rue Charles Martel, L-2134 Luxembourg, Grand Duchy of Luxembourg 4 Pionerskaya St., Korolev, Moscow Region RUB ,4 thsd USD 170 shares (nonvoting share, type В) RUB ,5 thsd 17-16, USD 15 - RUB 10,75 thsd RUB 0,25 thsd 2,33 43,5 Operations with Related Parties In the accounting period, the Corporation performed works for and provided services to the related parties as follows: Affiliate Name Nature of Relationship Type of operations «Energia Logistics, LTD» ZAO ZEM RSC Energia Belongs to a group of bodies The Corporation indirectly manages more than 50% of shares of the said body. Corporation has the right to dispose more than 50% of the total number of votes attaching to shares forming the authorized capital of this ZAO. Works and services in the area of space industry Renting services, security services Sales revenues (excluding VAT) in 2015 RUB. thsd. Sales revenues (excluding VAT) in

66 Affiliate Name Nature of Relationship Type of operations ZAO PO Cosmos Corporation has the right to dispose more than 50% of the total number of votes attaching to shares forming the authorized capital of this ZAO until AO Teplo RSC Energia Corporation has the right to dispose more than 50% of the total number of votes attaching to shares forming the authorized capital of this AO. SC Roscosmos AO V.P.Glushko NPO Energomash AO RKTs Progress Belongs to a group of bodies of the Corporation, indirectly manages more than 50% of voting shares of the Corporation. Belongs to a group of bodies OAO URSC has the right to dispose more than 50% of the total number of votes attaching to shares forming the authorized capital of this AO. Belongs to a group of bodies of the Corporation Renting services, / accounting recordkeeping and tax accounting services Renting services, security services Works and services in the area of space industry Works and services in the area of space industry Works and services in the area of space industry Sales revenues (excluding VAT) in 2015 Sales revenues (excluding VAT) in Total In the accounting period, the following affiliates provided services to (performed works for) the Corporation: Sales revenues Sales revenues Affiliate Name Nature of Relationship Type of operations (excluding VAT) in (excluding VAT) in AO IPK Mashpribor Belongs to a group of bodies Training services OAO URSC has the right to dispose more than 20% of the total number of votes attaching to shares forming the authorized capital of this AO. AO ISS after Academician Belongs to a group of bodies OAO Works and services in the area of space M.F.Reshetnev URSC has the right to dispose industry more than 20% of the total number of votes attaching to shares forming the authorized capital of this AO. 66

67 Affiliate Name Nature of Relationship Type of operations AO NII Komandnykh priborov AO NII TP AO NIIFI AO NIIEM AO NPK SPP AO NPO IT AO NPP Geophysica- Kosmos AO NPP Kvant AO NPTs Polyus AO RKTs Progress ZAO ZEM RSC Energia Belongs to a group of bodies Belongs to a group of bodies Belongs to a group of bodies Belongs to a group of bodies Belongs to a group of bodies OAO URSC has the right to dispose more than 20% of the total number of votes attaching to shares forming the authorized capital of this AO. Belongs to a group of bodies Belongs to a group of bodies Belongs to a group of bodies Belongs to a group of bodies Belongs to a group of bodies Corporation has the right to dispose more than 50% of the total number of votes attaching to shares forming the authorized capital of this ZAO. Works and services in the area of space industry Works and services in the area of space industry Works and services in the area of space industry Works and services in the area of space industry Works and services in the area of space industry Works and services in the area of space industry Works and services in the area of space industry Works and services in the area of space industry Works and services in the area of space industry Works and services in the area of space industry Works and services in the area of space industry Sales revenues Sales revenues (excluding VAT) in (excluding VAT) in

68 Affiliate Name Nature of Relationship Type of operations AO Teplo RSC Energia Corporation has the right to dispose more than 50% of the total number of votes attaching to shares forming the authorized capital of this ZAO. ZAO VKB RSC Energia ZAO PO Kosmos Corporation has the right to dispose more than 50% of the total number of votes attaching to shares forming the authorized capital of this ZAO. Corporation has the right to dispose more than 50% of the total number of votes attaching to shares forming the authorized capital of this ZAO until ZAO Energia-Telecom Corporation has the right to dispose more than 50% of the total number of votes LLC OIME OAO URSC attaching to shares forming the authorized capital of this ZAO. Corporation has the right to dispose more than 50% of the total number of votes attaching to shares forming the authorized capital of this ZAO. The body has the right to dispose more than 50% of voting shares of the Corporation. Sales revenues (excluding VAT) in 2015 Sales revenues (excluding VAT) in 2016 Purchasing fixed assets Purchasing fixed assets Air transportation of passengers, cargo and mail. Works and services in the area of space industry Other expenses Works and services in the area of space industry Total

69 Status of cash payments of the Corporation with the affiliates as of December 31, 2016 and December 31, 2015: RUB thsd. Company Name Accounts Receivable Accounts Payable AO IPK Mashpribor AO ISS after Academician M.F.Reshetnev AO NII Komandnykh Priborov AO NII TP AO NIIFI AO NIIEM AO NPK SPP AO NPO IT AO NPP Geophysica-Kosmos AO NPP Kvant AO NPTs Polyus AO RKTs Progress ZAO ZEM RSC Energia ZAO Teplo RSC Energia ZAO VKB RSC Energia ZAO PO Kosmos ZAO Energia Telecom LLC OIME OAO URSC "Energia Logistics, LTD" SC Roscosmos AO Academician V.P.Glushko NPO Energomash A list of other related entities which had no operations in the accounting period. # Related entity Nature of Relationships 1 Smelov Alexander Nikolaevich Belongs to a group of persons ZAO RTTs Energia-RiТМ 2. Bondarenko Nina Alexandrovna Belongs to a group of persons ZAO S.P.Korolev Rocket & Space Corporation Volzhskoe design bureau 3. Mukanin Andrei Alexandrovich Belongs to a group of persons ZAO S.P.Korolev Rocket & Space Corporation Volzhskoe design bureau 4. Grigoriev Anatoliy Petrovich Belongs to a group of persons AO Investment company Rasvitiye 5. Gerasimenko Oleg Belongs to a group of persons Energia-Overseas Ltd. Alexandrovich 6. Kakhno Dmitry Alexandrovich Belongs to a group of persons Energia Logistics Ltd. 7. Karman Brett Allen Belongs to a group of persons Energia Logistics Ltd. 69

70 # Related entity Nature of Relationships 8. Gugkaev Sergei Vladimirovich Belongs to a group of persons Sea Launch SA 9. Golovenko Sergei Petrovich Belongs to a group of persons OOO RSC Energia-Finance 10. Abramov Alexei Viktorovich Belongs to a group of persons AO Teplo RSC Energia 11. Evstratov Sergei Vladimirovich Belongs to a group of persons Limited liability company Orthopedic industry Moscow Energia 12. Vursol Anatoliy Vasilievich Belongs to a group of persons ZAO BELROSSTAT 13. Terekhov Vladimir Vladislavovich Belongs to a group of persons Limited liability company Energia Satellite Technologies 14. Limited liability company Belongs to a group of persons RSC Energia Telecom-proekt Shestakov Andrei Vasilievich Belongs to a group of persons OOO Telecom-proekt Botvinko Alla Alexeevna Belongs to a group of persons OAO Consortium Space Regatta 17. Besborodov Vyacheslav Georgievich Belongs to a group of persons OAO Scientific and Production Corporation RECOD 18. Closed joint stock company Belongs to a group of entities State Space Corporation Roscosmos Production Association Cosmos S.P.Korolev Rocket & Space Corporation Energia 19. Testoedov Nikolay Alexeevich Belongs to a group of persons AO Information Satellite Systems after Academician M.F. Reshetnev 20. Open joint stock company NPO PM Rasvitiye Belongs to a group of entities AO Information Satellite Systems after Academician M.F. Reshetnev 21. Korablev Alexander Vasilievich Belongs to a group of persons OAO NPO PM Rasvitiye 22. Open joint stock company NPO PM Small Design Bureau Belongs to a group of entities AO Information Satellite Systems after Academician M.F. Reshetnev 23. Artyushenko Alexander Belongs to a group of persons OAO NPO PM Small Design Bureau Grigorievich 24. Open joint stock company Test Technical Center NPO PM Belongs to a group of persons AO Information Satellite Systems after Academician M.F. Reshetnev 25. Orlov Viktor Ivanovich Belongs to a group of persons OAO Test Technical Center NPO PM 26. Open joint stock company Siberia Design Institute for Machine Builders Belongs to a group of entities AO Information Satellite Systems after Academician M.F. Reshetnev 70

71 # Related entity Nature of Relationships 27. Makarov Alexander Gennadievich Belongs to a group of persons OAO Siberia Design Institute for Machine Builders 28. Joint stock company Scientific Production Enterprise Belongs to a group of entities AO Information Satellite Systems after Academician M.F. Reshetnev Geophysics Space 29. Egupov Anatoliy Nikolaevich Belongs to a group of persons AO Scientific Production Enterprise Geophysics Space 30. Joint stock company Scientific Production Center Polyus Belongs to a group of entities AO Information Satellite Systems after Academician M.F. Reshetnev 31. Rusanovskiy Sergei Belongs to a group of persons AO Scientific Production Center Polyus Alexandrovich 32. Joint stock company Scientific Production Enterprise Kvant Belongs to a group of entities AO Information Satellite Systems after Academician M.F. Reshetnev 33. Nekrasov Anatoliy Belongs to a group of persons AO Scientific Production Enterprise Kvant Valentinovich 34. Joint stock company Siberia devices and systems Belongs to a group of entities AO Information Satellite Systems after Academician M.F. Reshetnev 35. Eremeev Gennady Karpovich Belongs to a group of persons AO Siberia devices and systems 36. Closed joint stock company Scientific Production Enterprise Medikon Belongs to a group of entities 37. Bodunov Sergey Bogdanovich Belongs to a group of persons 38. Limited liability company Belongs to a group of entities Exploratory Research Center AO ISS 39. Gets Evgeny Alexandrovich Belongs to a group of persons 40. Limited liability company Belongs to a group of entities UNIVERSUM SPACE TECHNOLOGIES 41. Stepanov Dmitriy Vladimirovich Belongs to a group of persons 42. Joint stock company Satellite Belongs to a group of entities system Gonets 43. Bakanov Dmitry Vladimirovich Belongs to a group of persons 44. Joint stock company Belongs to a group of entities TRIINVEST AO Information Satellite Systems after Academician M.F. Reshetnev ZAO Scientific Production Enterprise Medikon AO Information Satellite Systems after Academician M.F. Reshetnev OOO Exploratory Research Center AO ISS AO Information Satellite Systems after Academician M.F. Reshetnev Limited liability company UNIVERSUM SPACE TECHNOLOGIES AO Information Satellite Systems after Academician M.F. Reshetnev AO Satellite System Gonets AO Information Satellite Systems after Academician M.F. Reshetnev 71

72 # Related entity Nature of Relationships 45. Zavaruev Vladimir Andreevich Belongs to a group of persons AO TRIINVEST 46. Makridenko Leonid Alexeevich Belongs to a group of persons AO Scientific and Production Corporation A.G.Iosifyan Space Monitoring, Information- Control Systems, and Electromechanical 48. Joint stock company Production Design Enterprise IRIS Belongs to a group of entities 49. Puntus Andrei Petrovich Belongs to a group of persons 50. Joint stock company Research Belongs to a group of entities Institute of Electromechanics 51. Тarabanov Alexei Anatolievich Belongs to a group of persons 52. Closed joint stock company Belongs to a group of entities Novator 53. Kuprin Valery Viktorovich Belongs to a group of persons 54. Joint stock company Moscow Belongs to a group of entities plant of electromechanical equipment 55. Butrov Vladimir Andreevich Belongs to a group of persons 56. Closed joint stock company Belongs to a group of entities International Space technologies 57. Danelyan Andrei Vladikovich Belongs to a group of persons Complexes AO Scientific and Production Corporation A.G.Iosifyan Space Monitoring, Information- Control Systems, and Electromechanical Complexes AO Production Design Enterprise IRIS AO Scientific and Production Corporation A.G.Iosifyan Space Monitoring, Information- Control Systems, and Electromechanical Complexes AO Research Institute of Electromechanics AO Scientific and Production Corporation A.G.Iosifyan Space Monitoring, Information- Control Systems, and Electromechanical Complexes ZAO Novator AO Scientific and Production Corporation A.G.Iosifyan Space Monitoring, Information- Control Systems, and Electromechanical Complexes AO Moscow plant of electromechanical equipment AO Scientific and Production Corporation A.G.Iosifyan Space Monitoring, Information- Control Systems, and Electromechanical Complexes ZAO International Space technologies 72

73 # Related entity Nature of Relationships 58. Closed joint stock company Scientific and Production Association Novator Belongs to a group of entities AO Scientific and Production Corporation A.G.Iosifyan Space Monitoring, Information- Control Systems, and Electromechanical Complexes 59. Afonin Viktor Ivanovich Belongs to a group of persons ZAO Scientific and Production Association Novator 60. Degtyar Vladimir Grigorievich Belongs to a group of persons AO State Rocket Center after Academician V.P.Makeev 61. Kolmykov Vladimir Belongs to a group of persons AO Krasnoyarsk machine-building plant Afanasievich 62. Yurchikov Andrei Igorevich Belongs to a group of persons AO Miass machine-building plant 63. Joint stock company Zlatoust machine-building plant Belongs to a group of entities AO State Rocket Center after Academician V.P.Makeev 64. Lobanov Anton Viktorovich Belongs to a group of persons AO Zlatoust machine-building plant 65. Joint stock company Research Institute Hermes Belongs to a group of entities AO Academician V.P.Makeev State Rocket Center 66. Golubev Vyacheslav Sergeevich Belongs to a group of persons AO Research Institute Hermes 67. Arbuzov Igor Alexandrovich Belongs to a group of persons AO NPO Energomach after Academician 68. Limited liability company Energomach Electric Communication Belongs to a group of entities 69. Konstantinov Boris Dmitrievich Belongs to a group of persons 70. Limited liability company Belongs to a group of entities Energomach Finance 71. Chopik Marina Stepanovna Belongs to a group of persons 72. Limited liability company Belongs to a group of entities Sotsbytservice 73. Basmanov Vladomir Belongs to a group of persons Anatolievich 74. Limited liability company Belongs to a group of entities Agropolis 75. Pilipenko Alexei Yakovlevich Belongs to a group of persons 76. Limited liability company Belongs to a group of entities Voktoriya 77. Limited liability company Belongs to a group of persons Konvem V.P.Glushko AO NPO Energomach after Academician V.P.Glushko OOO Energomach Electric Communication AO NPO Energomach after Academician V.P.Glushko OOO Energomach Finance AO NPO Energomach after Academician V.P.Glushko OOO Sotsbytservice AO NPO Energomach after Academician V.P.Glushko OOO Agropolis AO NPO Energomach after Academician V.P.Glushko AO NPO Energomach after Academician V.P.Glushko 73

74 # Related entity Nature of Relationships 78. Limited liability company Med - Belongs to a group of entities AO NPO Energomach after Academician EM V.P.Glushko 79. Bairachenko Valeriya Anatolievna Belongs to a group of persons OOO Med - EM 80. Limited liability company Belongs to a group of entities AO NPO Energomach after Academician Research Company AKAr V.P.Glushko 81. Corporation International Space Belongs to a group of entities AO NPO Energomach after Academician Engines, Inc. V.P.Glushko 82. Chvanov Dmitry Vladimirovich Belongs to a group of persons Corporation International Space Engines, Inc. 83. Limited liability company Belongs to a group of entities AO NPO Energomach after Academician Innovation Activity Center OAO V.P.Glushko NPO Energomach 84. Bibko Viktor Vasilievich Belongs to a group of persons OOO Innovation Activity Center OAO NPO Energomach 85. Joint stock company Rocket Belongs to a group of entities URSC Space Center Progress 86. Kirilin Alexander Nikolaevich Belongs to a group of persons AO Rocket Space Center Progress 87. Closed joint stock company Samara Research Center of Space Technologies 88. Limited liability company Center of Nanosatellites Launch Services Belongs to a group of entities Belongs to a group of entities 89. Belokonov Igor Vitalievich Belongs to a group of persons 90. Closed joint stock company Belongs to a group of entities Makopse health resort 91. Takhmaziyan Ashot Siropovich Belongs to a group of persons 92. Joint stock company Research Belongs to a group of entities Institute for Control Devices 93. Mkrtychan Alexander Belongs to a group of persons Rachikovich 94. Joint stock company Belongs to a group of entities Academician A.Semikhatov Research and Production Association of Automatics 95. Misyura Andrei Vasilievich Belongs to a group of persons AO Rocket Space Center Progress AO Rocket Space Center Progress OOO Center of Nanosatellites Launch Services AO Rocket Space Center Progress ZAO Makopse health resort Joint stock company Rocket Space Center Progress AO Research Institute for Control Devices AO Rocket Space Center Progress AO Research and Production Association of Automatics after Academician A.Semikhatov 74

75 # Related entity Nature of Relationships 96. Tyulin Andrei Evgenievich Belongs to a group of persons AO Russian Corporation of Rocket and Space Instrument Engineering and Information Systems 97. Joint stock company Research Institute of Physical Belongs to a group of entities AO Russian Corporation of Rocket and Space Instrument Engineering and Information Systems Measurements 98. Dmitrienko Alexey Belongs to a group of persons AO Research Institute of Physical Measurements Gennadievich 99. Closed joint stock company NIIFI & VT Belongs to a group of entities AO Russian Corporation of Rocket and Space Instrument Engineering and Information Systems 100. Lapshin Vladimir Ilich Belongs to a group of persons ZAO NIIFI & VT 101. Joint stock company Specialist design department of Moscow Power Engineering Institute 102. Chebotarev Alexander Semenovich 103. Joint stock company Research and Production Organization Orion Belongs to a group of entities Belongs to a group of persons Belongs to a group of entities 104. Filippov Igor Alexandrovich Belongs to a group of persons 105. Joint stock company Research Belongs to a group of entities and Production Association of Measurement Equipment 106. Artemiev Vladimir Yurievich Belongs to a group of persons 107. Limited liability company Belongs to a group of entities Sinertek 108. Joint stock company Research Belongs to a group of entities Institute of Precision Instruments 109. Shishanov Anatoliy Vasilievich Belongs to a group of persons 110. Limited liability company OKB Belongs to a group of entities Telecom 111. Shatrov Vladimir Borisovich Belongs to a group of persons 112. Closed joint stock company Belongs to a group of entities Iskra-R 113. Volchok Mark Efimovich Belongs to a group of persons AO Russian Corporation of Rocket and Space Instrument Engineering and Information Systems AO Specialist design department of Moscow Power Engineering Institute AO Russian Corporation of Rocket and Space Instrument Engineering and Information Systems AO Research and Production Organization Orion AO Russian Corporation of Rocket and Space Instrument Engineering and Information Systems AO Research and Production Association of Measurement Equipment AO Russian Corporation of Rocket and Space Instrument Engineering and Information Systems AO Russian Corporation of Rocket and Space Instrument Engineering and Information Systems AO Research Institute of Precision Instruments AO Russian Corporation of Rocket and Space Instrument Engineering and Information Systems PC Research and Production Association Iskra PC Research and Production Association Iskra ZAO Iskra-R 75

76 # Related entity Nature of Relationships 114. Closed joint stock company Belongs to a group of entities AO Corporation Compomach Rosprodmach 115. Open joint stock company МZEM Belongs to a group of entities ZAO Rosprodmach 116. Sazonov Valeriy Stanislavovich Belongs to a group of persons OAO МZEM 117. Open joint stock company Belongs to a group of entities AO Corporation Compomash Mozhaisk Medical Instrumentation Plant 118. Fotiev Nikolay Vitalievich Belongs to a group of persons OAO Mozhaisk Medical Instrumentation Plant 119. Roi Yury Arsentievich Belongs to a group of persons AO Research and Production Corporation 120. Joint stock company Research Engineering Center of Electrotechnical University Belongs to a group of entities 121. Ekalo Yury Vladimirovich Belongs to a group of persons 122. Joint stock company The 106 th Belongs to a group of entities Experimental Optical Mechanical Plant 123. Kozodaev Nikolay Alexandrovich Belongs to a group of persons 124. Limited liability company Belongs to a group of entities Crioservice 125. Bashkarev Vladimir Belongs to a group of persons Alexandrovich 126. Limited liability company Proton Belongs to a group of entities Finance 127. Tselischev Mikhail Grigorievich Belongs to a group of persons 128. Limited liability company Belongs to a group of entities Cosmos - P 129. Parmenov Viktor Belongs to a group of persons Konstantinovich 130. Limited liability company Belongs to a group of entities Laboratory of Effective Power Engineering Solutions 131. Kleschevnikov Alexei Mikhailovich Belongs to a group of persons 132. Joint stock company Technical Belongs to a group of entities Center Novator 133. Kosarev Alexander Nikolaevich Belongs to a group of persons 134. Limited liability company МV- Belongs to a group of entities Master Precision Instrument Making Systems AO Research and Production Corporation Precision Instrument-Making Systems AO Research Engineering Center of Electrotechnical University AO Research and Production Corporation Precision Instrument Making Systems AO The 106 th Experimental Optical Mechanical Plant AO Design Department for Chemical Automatics. OOO Cryoservice PC Proton Perm Motors OOO Proton Finance PC Proton Perm Motors OOO Cosmos - P PC Proton Perm Motors OOO Laboratory of Effective Power Engineering Solutions PC Proton Perm Motors AO Technical Center Novator PC Proton Perm Motors 76

77 # Related entity Nature of Relationships 135. Ganeles Mikhail Lvovich Belongs to a group of persons OOO МV- Master 136. Limited liability company Kosmos-stroy Belongs to a group of entities PC Proton Perm Motors 137. Vronsky Sergey Vladimirovich Belongs to a group of persons OOO Kosmos Stroy 138. Afonin Andrei Yurievich Belongs to a group of persons AO Institute of Staff Training for Machine- Building and Instrument Making 139. Joint stock company ECHO Belongs to a group of entities 140. Mironenko Yury Dmitrievich Belongs to a group of persons AO ECHO A list of other related entities for which reserves for doubtful debts were accumulated in the accounting period: Flow of reserves for doubtful debts in organizations, related entities Name As of January 01, Accumulation of Recovery of reserve 2016 reserve as of December 31, 2016 Sea Launch AG AO Krasmach ZAO VKB RSC Energia AO Teplo RSC Energia ZAO PO Cosmos ZAO RTTs Energia-RiТМ LLC OIME Energia - Logistics, LLC Prices for products, goods, works, and services provided to the Corporation by its subsidiaries and supplied by the Corporation to its subsidiaries are set based on the contracts concluded in accordance with market prices. The Corporation settles accounts with its subsidiaries in cash. The amount of interest accrued on loans granted by the Corporation to its affiliates (ZAO PO Cosmos), was RUB thsd. and RUB thsd. in 2016 and 2015, respectively. The amount of interest accrued on loans granted by the Corporation to its largest other related entities (Energia Overseas, LLC and Energia - Logistics, LLC) equaled to RUB thsd. and RUB ,4 thsd. in 2016 and 2015, respectively. The Corporation lent its largest affiliate (Energia Overseas, LLC and Energia - Logistics, LLC) and other organizations at the rate of from 6% to 16% and from 4,5% to 11%. The balance on granted loans was RUB thsd and RUB thsd as of and , respectively. The remuneration paid to the administrative and management staff of the Corporation over 2016 and 2015 amounted to as follows: Indicator RUB thsd. Short-term remuneration (labor compensation, taxes accrued thereon and , ,1 other mandatory payments) The administrative and management staff of the Corporation includes as follows: Director General, Deputy Director General, Deputy General Designers, heads of research and development centers, departments, branches, directorates, project offices, centers, administrations and services, program directors and other persons

78 (exercising powers of an executive body under a power of attorney), administration and management personnel. The remuneration of the Director General is approved by the Chairman of the Corporation s Board of Directors. The remuneration of members of the Corporation s Board of Directors is approved by the General Meeting of shareholders. The remuneration paid to members of the Corporation s Board of Directors was RUB thsd and RUB thsd in 2016 and 2015, respectively. No payments in 2015 and 2016 were made to the Corporation management Estimated Liabilities In the Balance Sheet for 2015, line 1540 "Estimated liabilities contains the value of estimated liability on carry-over vacations of Corporation s employees amounting to RUB thsd as of December 31, In the Balance Sheet for 2016, as of December 31, 2016 in line 1430 Estimated liabilities on costs to be incurred on warranty maintenance and performance of technical support of SS amount to RUB thsd. Line 1540 Estimated liabilities displays the amount of RUB thsd for estimated liability unused vacations of the Corporation employees and estimated liabilities on warranty maintenance and performance of technical support of SS in the amount of RUB thsd. Indicator Line Code Opening balance Recognized Repaid Written-off as a surplus amount Closing balance Estimated liabilities total ( ) ( -) including: ( -) ( -) - Estimated liabilities on claims Estimated liabilities on onerous contracts Estimated liabilities on reorganization Estimated liabilities on warranties of goods sold quality ( -) ( -) ( -) ( -) ( -) ( -) - Estimated liabilities on vacations ( ) ( -) Estimated liabilities on warranty maintenance and performance of technical support of SS Estimated liabilities on capital investment project Estimated liabilities on other payments ( ) ( -) ( ) ( -) ( -) ( -) - 78

79 3.28 Contingent Assets and Liabilities The Corporation is one of the parties in the following court legal proceedings: 1. On February 1, 2013 the court of central district, California, received the statement of claim of companies Boeing and Boeing Commercial Space Company (BCSC) which included 4 claims: bringing suit against Design Bureau Yuzhnoye and PO Yuzhmashzavod (Ukraine) for breach of the Agreement on Creation of the Sea Launch Companies dated May 3, The amount claimed is 55 million US dollars. bringing suit against DB Yuzhonoye/PO Yuzhmash for breach of the Agreement on the Guarantees and Security dated February 3, The amount claimed is 78 million US dollars. bringing suit against RSC Energia (FR), Energia Overseas LLC (USA) and Energia Logistics Ltd (USA) for breach of the Agreement on Creation of the Sea Launch Companies dated May 3, The amount claimed is 92 million US dollars. bringing suit against RSC Energia (FR), Energia Overseas LLC (USA) and Energia Logistics Ltd (USA) for breach of the Agreement on the Guarantees and Security dated February 3, The amount claimed is 130 million US dollars. In addition, claims are made to collect interest on all the amounts claimed (at the rate to be determined by the court). RSC Energia disagreed with the due claims, and on July 5, 2013 presented corresponding counter-arguments, as well as a counter claim for 430 million US dollars. On December 18, 2013, the court decerned a partial satisfaction and partial denial to approve the petition of the plaintiffs to reject the counter claims of RSC Energia. The court also pointed out that RSC Energia counter claims are subject to arbitration in Stockholm, Sweden. On September 28, 2015 Boeing claims in action against RSC Energia were reviewed, and a preliminary judicial act was issued, indicating that the plaintiffs arguments (Boeing and BKSK) against the claim to RSC Energia is reasonably sufficient, RSC Energia arguments are not reasonably sufficient, and the evidence in the case is sufficient to make a decision without conducting court hearings. On November 10-23, 2015, hearings at the suit of Boeing against Energia Overseas LLC (USA) and Energia Logistics Ltd (USA) were held on grounds of alter ego. On April 1, 2016 Boeing filed a petition for provisional measures in the form of arrest of assets and/or a court injunction to sell Sea Launch. On May 12, 2016, the California Central District Court delivered a judgment against the claims of Boeing to RSC Energia, in which the court satisfied Boeing requirements to RSC Energia for the amount approximately 330 million US dollars. On May 13, 2016, the California Central District Court delivered a judgment in which the court recognized Energia Overseas LLC (USA) and Energia Logistics Ltd (USA) to be alter ego of RSC Energia. On July 22, 2016, the court delivered a judgment to suspend procedural actions in accordance with the legal statements submitted by the parties following the negotiations of a settlement agreement. As of December 31, 2016, the representatives of the parties reached an agreement on the majority of elements of the final settlement agreement. The settlement agreement was reached. The court delivered a judgment to terminate the case in connection with the settlement agreement reached by the parties. 79

80 2. Trial concerning the matter of insolvency (bankruptcy) of the organization. Plaintiff (Applicant) is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Defendant (Debtor) is SUE NPTs SPURT (4 Zapadny 1st proyezd, Zelenograd, Moscow, ). Matter in contest is the creditor s claim for recovery of ,00 rubles within the framework of the matter of insolvency (bankruptcy) of the organization. Arbitration court of the first instance issued judicial determination on that the claim was to be entered into the schedule of creditors. As for SUE NPTs SPURT, proceedings in bankruptcy are opened. By Moscow Arbitration court determination of the bankruptcy proceedings were prolonged till Court proceedings on award of penalty under a state contract. Plaintiff is State Corporation Roscosmos (42 Schepkin street, Moscow, GSP-6, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). Matter in contest is a claim for recovery of forfeit penalty under the state contract amounted to RUB ,50. The decision of the Moscow Arbitration Court was to dismiss the claims. SC Roscosmos filed in appeal. By the court decision of the judicial decision remained unchanged, and the appeal unsatisfied. 4. Court proceedings on award of penalty under a state contract. Plaintiff is State Corporation Roscosmos (42 Schepkin street, Moscow, GSP-6, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). Matter in contest is a claim for recovery of forfeit penalty under the state contract amounted to RUB The decision of the Arbitration Court of the Moscow Region was to dismiss the claims. The court decision of the appeals instance accepted a new judicial act, which satisfied SC Roskosmos claims in full. The court of cassation expedited the cause for retry to the first-instance court. The court session is scheduled for Court proceedings on award of penalty under a state contract. Plaintiff is State Corporation Roscosmos (42 Schepkin street, Moscow, GSP-6, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). Matter in contest is a claim for recovery of forfeit penalty under the state contract amounted to RUB ,32. By decision of the Moscow Arbitration Court was the claims were dismissed. By decision of the appeals instance the ruling is upheld. SC Roscosmos filed a cassation appeal. The cause is expedited for retry to the Moscow Arbitration Court. The court session is scheduled for Court proceedings on specific performance. Plaintiff is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). 80

81 Defendant is FKU Tsentravtomagistral (139, Novaya street, Akulovo village, Odintsovsky Region, Moscow Region, ). Matter in contest is performance of installation of plastic noise-protective windows in RSC Energia buildings. By the decision of Moscow Region Arbitration Court the statement of claim was noted, the court session was scheduled for By the decision of Moscow Region Arbitration Court the court session was postponed to April 28, By the decision of Moscow Region Arbitration Court as of an expert testimony in court with regard to case was called for, in this connection the hearing of the case was suspended. 7. Court proceedings on award of penalty under a state contract. Plaintiff is State Corporation Roscosmos (42 Schepkin street, Moscow, GSP-6, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). Matter in contest is a claim for recovery of forfeit penalty under the state contract amounted to RUB ,67. The statement of claim was initiated by the Arbitration Court of the Moscow Region in December The court session is scheduled for Court proceedings on award of penalty under the contract. Plaintiff is FSUE TsENKI (42, Schepkin street, bld.1, 2, Moscow, ) Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). Matter in contest is a claim for recovery of forfeit penalty amounted to RUB ,00. The statement of claim was initiated by the Arbitration Court of the Moscow Region in December The preliminary court session is scheduled for Court proceedings on penalty of money indebtedness under the contract. Plaintiff is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). Defendant is OAO Teploset (2A 50 let VLKSM street, Korolev, ) Matter in contest is recovery of the principal debt in the amount of RUB ,74 and penalties for out-of-time funds transfer in the amount of RUB ,50. The statement of claim was initiated by the Arbitration Court of the Moscow Region in December The preliminary hearing is scheduled for law. 10. Court proceedings on recovery of principal debt, forfeit penalties and statutory interests under the Plaintiff is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). Defendant is FSUE TsENKI (42, Schepkin street, bld.1, 2, Moscow, ) Matter in contest is recovery claims of the principle debt amounted to RUB ,00, forfeit penalty amounted to RUB ,00 and RUB ,80, statutory interests amounted to RUB ,17. The Arbitration Court of the Moscow Region by its decision of satisfied the plaintiff's claims in full 81

82 FSUE TsENKI filed in appeal. The Court of Appeal by its decision of upheld the judicial act. A settlement agreement was concluded. The case on approval of the settlement agreement was appointed by the court for hearing on Court proceedings on recovery of the monetary debt under the Contract. Plaintiff is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). Defendant is LLC Atlantis (5, Staroalekseevskaya street, Moscow, ) Matter in contest is debt recovery under the contract amounted to RUB The statement of claim was initiated by the Arbitration Court of Moscow in September The court session is scheduled for The settlement agreement was approved. 12 Court proceedings on recovery of damages. Plaintiff is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). Defendant is LLC PROMSTROISERVICE (14, Kievskaya street, Moscow, ) Matter in contest is recovery of damages in the amount of RUB ,72. The statement of claim was initiated by the Arbitration Court of the Moscow Region in November The preliminary hearing is scheduled for Court proceedings on collection of unreasonable earnings. Plaintiff is RSC Energia (4A Lenin Street, Moscow Region, Korolev, ). Defendant is FBU ЕS AKPS (37, Leningradsky prospect, Moscow, ) Matter in contest is collection of unreasonable earnings in the amount of RUB ,88. The statement of claim was initiated by the Arbitration Court of Moscow in December The preliminary court session is scheduled for Non-state Pension Provision Program As of December 31, 2016 the Corporation has an estimated liability under the Non-State Pension Provision Program (NSPP) for employees that is not recognized in the accounting records and disclosed as an indirect liability due to failure to fulfill the condition provided for in Clause 5 (c) of the Accounting Regulations "Estimated liabilities, indirect liabilities and contingent assets" (PBU 8/2010), namely, the value of estimated liability cannot be reasonably estimated, as the NSPP conditions are liable to change based on certain economic conditions and the financial capabilities According to the Corporation s calculation, the value of the indirect liability as of December 31, 2016 is approximately RUS thsd Risks Related to Business Operations In the course of its operations, RSC Energia is largely exposed to risks related to the economy and financial markets of the Russian Federation. Should one or more risks of those listed below arise, RSC Energia will undertake all possible measures to minimize its negative consequences. The license requirements established by the applicable legislation are duly observed by the Corporation. Changes in the legislation, as well as draft documents in the field of core activities licensing provided on official websites of licensing authorities are carefully examined. In order to reduce some of the risks to the extent possible, the Corporation undertook certain protective measures primarily related to the implementation of the main production program of the Corporation (in particular, insurance against certain risks is common). However, it should be noted that working out preliminarily adequate measures to counteract unforeseen events is difficult due to the uncertainty about how the situation unfolds. The risk management function in the Corporation is distributed, i.e. risks identification and analysis, 82

83 making and implementing necessary decisions to counteract/minimize risk consequences are provided by top managers responsible for relevant areas: economic risks are managed by First Deputy Director General for Economics and Corporate Governance; Project managers; technical risks are considered by Designer General, First Deputy Designer General, Deputies Designer General, Chief Designers for core business activities; technological risks are undertaken by the Corporation Chief Engineer, the management of the main technological entity, ZAO ZEM RSC Energia; legal risks are dealt with by Deputy Director General for organization legal matters, etc. When responsible top manager does not have enough authority for decision taking or risk may affect several lines of activity, the Board of Management and RSC Energia Director General are to be involved Space Industry Risks At the present time, demand for space services (both manned and unmanned) on the world market is gradually increasing. After closure of the Space Shuttle Program, Russia dominates on the manned flights market. The demand for RSC Energia made manned transport space vehicles such as the Soyuz and cargo vehicles Progress from a near-term outlook (throughout ISS operational use as a minimum) is expected to be stable. It is determined by the need to meet international commitments by Russia to deliver crew members and cargo to support the ISS operation (including fuel supply). However, under the Federal Space Program intended for the period, the number of annually launched cargo transport spacecraft has decreased to three. Since 2012, the US Space Agency NASA can use cargo transport spacecraft Dragon in order to deliver and return cargo to/from the ISS on its own. Since 2013, NASA cargo can also be delivered to the ISS via cargo transport spacecraft Cygnus. As a result, NASA s orders for cargo transportation by the Progress spacecraft have reduced. As the US commercial companies continue to implement their plans for building manned space vehicles, Russia s dominance on the manned space flights market will not be held for a long time, while competition will be sharpening (according to the forecasts). So, NASA plans to start flight tests of commercial spacecraft SpaceX in August 2017, while commercial spacecraft of the Boeing will be put to tests (CFT) in December The Corporation has no competitors in this area on the home market. Steady demand is expected for the Corporation activities aimed to operate the ISS and use it for specified purposes, including international projects for Earth and space research; building new ISS elements (MLM-U, NM, SPM), as well as conduct advanced developments in manned cosmonautics, including creation of an advanced manned transportation system and deep space exploration. The above plans are part of the Federal Space Program planned for the period from 2016 to Prospects for further development of Russian manned cosmonautics regarding transportation spacecraft involve building new generation crew transportation spacecraft, as well as cargo transportation spacecraft with an increased lifting capacity. For the Corporation, space industry risks are associated with an increase in the product cost and the ratio between dynamics of this increase and those of world analogues. There is a possibility of increased risks due to economic problems that allied organizations involved in traditional cooperation At the present time, demand for space services using unmanned spacecraft (SC) on the Russian and world markets tends to grow steadily. Currently, the main priorities on the world market of communication and broadcasting commercial satellites are: 83

84 building SC with upgraded performance (service life, power, transmission capacity, etc.) operating in C and Ku frequency bands for a scheduled replacement of operational SC; manufacture of SC operating in Ka frequency band making it possible to dramatically rise transmission capacity of satellites and provide new satellite communication services: wide-band access to Internet network and high-rate trunk communication channels. The most critical factors determining space industry risks on the world market for unmanned spacecraft manufacture are the following: keen competition among major manufacturers of spacecraft on the world market; new world players from the countries with high rates of economic growth (such as China, India, Japan) entering the market of unmanned spacecraft manufacture and launch; political instability in some developing countries which create potential market for the Corporation products and services; trend towards integration of the world space services market into common open free partnership for space services and technologies manufacture and application. Also it is worth noting that there is a robust competition among national manufacturers of spacecraft such as OAO Information Satellite Systems after academician M.F. Reshetnev, AO RSC Progress, AO NPO after S.A. Lavochkin, etc. In order to prevent possible negative consequences of space industry risks, RSC Energia pursues an active scientific-technical policy of participation in the RF Federal Space Program, conducts continually search for potential Russian and foreign customers of satellites and foreign partners interested in advanced space technologies. RSC Energia gives great attention to research and development activities on improvement and mastering new technologies. Work is currently underway for building a new modification of multipurpose space bus. In order to master and introduce advanced technologies in designing and manufacturing of SC for different applications, RSC Energia extends cooperation with the leading European company such as Airbus Defence & Space, including cooperation within joint venture Energia-Satellite Technologies (LCC Energia SAT). Regarding RSC Energia-made DM-type Upper Stages, the Corporation competes with Russian manufacturers of such Upper Stages as FSUE Khrunichev SR&PSC (the Briz-M Upper Stages which are operated with Proton-M launch vehicle and since 2014 with Angara A5 LV) and AO NPO after S.A. Lavochkin (the Fregat-SB Upper Stages which are designed to operate with Zenit and Soyuz launch vehicles). The Corporation, therefore, is busy all the time with efforts to improve and upgrade technical and operational characteristics of the DM-type Upper Stages which present, by current estimates, one of the best choices worldwide in energy efficiency, ecological compatibility, accuracy in delivery of «heavy» payloads and SC to desired high-energy orbits/flight courses Country and regional and logistics risks Core activities of the Corporation are concentrated in Russia. The enterprise operation can be impacted by risks associated with instability on world markets as a whole and its adverse effect on national economy, industry, financial system. Risks mitigation factor is the political situation nationwide remaining stable, as well as production diversification and outlined trend of competitive growth of the Russian electronic component base. The corporation does not forecast adversely changing situation in Russia which could affect economic position of the Corporation and its business in the immediate future. However, one must not rule out a possibility of economic destabilization in the country related to mounting crisis on financial markets or a sharp 84

85 decline in oil and gas prices; aggravation of international, military, political and economic situation due in part to the events taking place in the Ukraine and Middle East. The enterprise operation can be impacted by risks associated with phasing out or short delivery any particular purchased component parts that can increase the risks of non-execution of certain agreements on product delivery. The Corporation is registered and conducts its activities in such economically stable and dynamically developing region, as Moscow Region one of the most prospective area with fast-growing economy of the federal subjects of the Russian Federation. Geographic features of the region account for extremely low risks of exposure to disasters (including hurricanes, floods, earthquakes, etc.). The region is located in the central part of the Russian Federation where transportation is well developed. Moscow region is connected via motor, railway and air transport with all Russian regions, as well as all countries, which entirely excludes the risk of possible termination of transportation due to remoteness of the region and/or its being difficult of access. Moscow Region is regarded as one of the most politically stable areas which do not border directly upon zones of military conflicts, as well as the regions, in which there is a high probability of introducing state of emergency. However, being aware of current international situation, we cannot rule out the risks associated with attempts to commit terrorist acts by extremist groups. Due to this, the Corporation give particular emphasis on internal premises security, as we as IT security. At the same time, geographical remoteness of the Corporation from sites of vehicles prelaunch processing on Processing Facility and Launch Complex of cosmodromes (including Baikonur Cosmodrome) determines arising of risks of the Corporation property loss and damage during its transportation to point of destination. The Corporation provides for insurance against these kinds of risks. Due to the fact that the Corporation conducts its activities on the territory of the Republic of Kazakhstan (Baikonur Cosmodrome), impact of country risks associated with unfavorable development of political and economic factors on interstate relations is possible. However, the agreement concluded between Russia and Kazakhstan on the use of Baikonur Cosmodrome until 2050, as well as the agreement on the Eurasian Economic Union come into effect on January 1, 2015, which ensures freedom of movement of goods, services, capital and labor power, allow to assess risk like that as insignificant. The Parties do their best to create necessary conditions for a steady economic development of the member states; provide (among other things) coordinated state backing of their priority industries and works; pursue agreed customs policy; develop united transportation systems. In addition, the commissioning of Vostochnyi cosmodrome in the foreseeable future will make it possible to minimize the country risk in space activity of Russia. Due to the fact that the Corporation is involved in a number of projects for foreign customers located in African countries, unstable political situation in the above region might have an adverse effect on the Corporation operation. These risks are insured as well Financial risks Inflation risks, exchange risks and credit interest rate risks negatively impact the operation and financial stability of RSC Energia, as well as the size of proceeds of the sale of goods (works, services) and amount of profit. Changes in the consumer price index, which result in appreciation of products and materials used in economic activities, if a compensation component is not present in the price of salable or purchasable products, may affect negatively the size of net profit of all the Corporation's ongoing activities. Notwithstanding the fact that even with significant increase of a level of consumer prices RSC Energia retained operating profitability, there is no guarantee that a possible increase or decrease in consumer prices will 85

86 not lead to a fall of a level of profitability of the enterprise in the future. According to the forecasts of the Ministry of Economic Development, the estimated expected inflation in 2017 may be between 4% and 6%. For RSC Energia, currency fluctuations are important due to the fact that the Corporation is an exporter, and also an importer of science-intensive and high-tech products. Currency valuation of import contracts with foreign contracting parties is carried out in US dollars and euros, therefore the Corporation does not benefit from their high rates to ruble. Currently, the volume of foreign trade contracts has decreased, in this regard, the impact of currency risks on the business and financial performance indicators is not significant. In the conditions of shortage of financial resources, the Corporation is actively searching for borrowings to fulfill the terms of state contracts, commercial projects and business activities. rates. In the period from 2013 to 2015, borrowing funds within the credit lines were effected at below-market However possible actions of the Central Bank of the Russian Federation to change the refinancing rate and the key rate upwards may negatively affect the entire activity of the Corporation and its financial performance, as the company actively uses borrowed funds in its activities. In case of occurrence of the above risks, RSC Energia will take all possible measures to minimize negative consequences, but it must be taken into account that security measures can be hampered by uncertainty in the development of the geopolitical situation, high volatility of the exchange rate, unstable situation in both domestic and external financial markets Legal risks Range of the Corporation legal risks includes the following: risks of losses due to potential illegitimacy of transaction or its improper documentation; infringement of codes and rules of doing business; risks of the party concerned handling a transaction with insufficient authority thereto; risk of lawsuit court judgement duration and costs which involve negative property consequences for the Corporation; risk of taking inadequate or incorrect legal advice; legally unsettled problems and situations arising in the course of the Corporation operation; risk of changing current legislation. In order to minimize the abovementioned risks, the Corporation arranged the process of submission of transactions for approval which includes mandatory agreeing on all transactions with the Department of organizational and legal issues. When consummating civil transactions implemented by the Corporation, as well as in the process of satisfying debt or duty to perform on the basis of these transactions, the Auditing Department verifies contracting parties for reliability, possibility of the contracting parties to provide quality goods (works, services), and absence of hidden affiliation. In the Corporation great importance is paid to prevention of corruption offenses and corruption management as key factors of direct impact on the level of corporate risk. Measures to prevent and reduce corruption risks are formalized in the internal regulatory documents of the Corporation, such as: Anticorruption Policy, Code of Corporate Conduct, Code of Ethics, Regulation on Gifts, Regulation on Conflict of Interest. Procurement activities of the Corporation are fully regulated, mandatory competitive procedures have been introduced. One of the most important components of legal risks is tax risk. One of the peculiarities of the Russian legislation on taxes and charges is its continuous changeability. The laws making amendments to the Russian Federation Tax Code with respect to changes to specific tax calculation and payment procedure are passed annually. This adds complexity to making medium-term and long-terms forecasts for taxpayer activity, complicates tax planning as a whole. Instability of tax regulations exposes the Corporation to risk of being charged and having to pay rather high penalties and fines, despite its intention to operate in strict compliance 86

87 with the legislation, as well as can lead to an increase in tax burden as a whole. Corporation continues to carry out an analysis of amendments to existing tax legislation with the aim to reduce tax risks. A change of customs regulation rules can definitely and sufficiently impact the Corporation activity. In the reporting period there were no significant changes of the custom registration rules, which could have increased the Corporation risks in this area. The Corporation is a participant in foreign economic relations, part of its commitments was undertaken to be in foreign currency; therefore, the Corporation is running the risks related to exchange adjustment change. At the present time, liberalization of foreign exchange legislation is underway; the reporting period showed no significant changes in exchange rate adjustment regulations; therefore, the above risks are assessed as low. Changes in the licensing requirements for the core activities of the Corporation may result in some additional costs associated with obtaining a new license, or extending or replacing the already existing one, but the Corporation predicts the risk of occurrence of such events as unlikely. RSC Energia timely and fully fulfills all licensing requirements, no difficulties in renewal of the existing licenses are predicted by the Corporation. The reporting period revealed no changes in judicial practice concerning operation of the Corporation (including licensing issues) which could affect its performance, as well as the results of current legal proceedings to which the Corporation is a party. Legal risks associated with the change of judicial practice on issues related to the Corporation's activities, which may adversely affect the results of its activities, are considered as minimal Analysis of factors and conditions affecting the Corporation activity. The basic competitive strengths of RSC Energia in the market of space products and services are as follows: - experience in the implementation of manned programs, including the function of integrator of major international projects; - high quality and reliability of spacecraft provided by the availability of highly-qualified staff and certified quality management system; - wide experience of cooperation with Russian and foreign customers and partners; - stability of the Company ensured by stable state orders and availability of skills in some areas of space technology; - availability of the acquired image (brand) of a fleet leader and pioneer in the national and foreign world space industry; - presence of a wide and stable cooperation across Russia; - methodical work with advanced technical higher education institutions of the country on staff training and continuous replenishment of the personnel with highly intellectual young personnel; - extensive bench-top base and full-scale ground testing of space products as a guarantee of high quality and reliability of products. To hold and strengthen positions in the market of commercial launches, the following actions are required: - orientation of all new developments to the advanced hardware components of domestic production; - improvement of the provided services, both in content and quality, provided by advanced hardware components and new system-project solutions; - decrease of the unit cost of products and services due to modernization of production and increase of its volume (batch fabrication); 87

88 - constant increase of labor productivity; - reducing the time for product manufacture, which reduces the risk to the potential customer; - a comprehensive solution of the worldwide endemic problem of removing space debris of terrestrial artificial origin from the Earth s orbits; - large-scale implementation of space technology insurance. In the area of development and operation of manned transport vehicles, the Corporation occupies a stable leading position. Competition in the area of developing automatic spacecraft is improved. The most serious competitors are foreign companies, and in Russia: OAO Information Satellite Systems after academician M.F.Reshetnev - in the segment of communication systems, AO "RKTs" Progress "(reorganized FSUE GNPRKTs" TsKB - Progress ") - in the segment of Earth remote sensing satellites. In July 2015 two contracts on cooperation in production of automatic spacecraft were signed. RSC Energia and OOO Gascom space technologies (Gascom ST) intend to expand and deepen cooperation in development of Yamal and Smotr orbit groups, including the experience of successful joint work on the Yamal-100 and Yamal-200 projects. Under the contract RSC Energia will use payloads developed by Gazkom KT for spacecraft of various application. In its turn, Gazcom KT will use RSC Energia-developed satellite buses. Development of Yamal 501 spacecraft considered to be the first joint project. In July 2015, RSC Energia and FSUE Kosmicheskaya Svyaz (GP KS) signed an agreement on cooperation in development of advanced satellite communication and broadcasting systems. Technical requirements for advanced systems, including those created in the interests of GP KS are planned to be developed. It is expected that the combined efforts of the two enterprises will make it possible to use more effectively the resources available to the parties Corporation Policy in Internal Risk Control and Management The Corporation activity in the area of risk management is aimed at increasing shareholder value and improving the quality of corporate management by identifying risks, analyzing their materiality, and developing measures to minimize risks. In 2016 the Corporation carried out works aimed at improving the risk management system. The policy of RSC Energia in the area of internal risk control and management is based on the following key principles: - increasing the business worth of RSC Energia: internal risk control and management system (hereinafter referred to as IRCMS) helps towards the attainment of an end and performance improvement, human health support and safety assurance, security of all RSC Energia activities, compliance with statutory and regulatory requirements, environmental protection, improvement in the quality of production, efficiency of operations, management and reputation; - continuity: IRCMS operates on a permanent basis; - integration: IRCMS is an integral part of the corporate management system and is used to develop and generate the strategy; - integrity: IRCMS captures all areas of RSC Energia activity and all types of risks occurred in their frameworks. Control procedures exist in all business processes at all levels of management. - unity of methodological base: processes in IRCMS are implemented on the basis of common approaches and standards for all structural units; 88

89 - priority: RSC Energia takes all necessary measures, primarily with regard to risks critical for the activity. - disclosure of information: IRCMS provides control over disclosure of information on RSC Energia activities to external users; - functionalities: assignment of target responsibility for risk management of various activities of RSC Energia is provided in accordance with the separation of functional duties in RSC Energia and its subsidiaries and affiliates; - separation of duties: functions between employees and structural units of RSC Energia are distributed in such a way that one person or structural unit was not simultaneously assigned with duties for implementation of functions and duties for their compliance control; - optimality: scope and complexity of internal control procedures and risk management measures are necessary and sufficient to fulfill the tasks and achieve the objectives of IRCMS operation; - equilibrium: all control functions and risk management functions are provided with means and authorities for their implementation; - clear regulation: all operations are conducted in accordance with the implementation procedure; - message expediency: information on the identified risks and non-fulfillment of control functions should be provided in due time to persons authorized to take appropriate decisions; - authorizations and approvals: all business transactions shall be formally approved or authorized by responsible persons within their authority; - transparency: proper and timely participation of parties concerned ensures that IRCMS remains relevant and timely; - use of the best available information; - adaptability: IRCMS is regularly improved to identify all possible operational risks and maximize the effective application of risk control and management methods 3.29 Events after the Reporting Date Over the period between the reporting date and the execution date of the financial statements, the Corporation didn't face any events, which impacted or were likely to have a significant impact on the financial condition, cash flows or operating results First Deputy Director General for Financial and Economic Activity: (signature) March 31, 2017 Vinokurov Pavel Vyacheslavovich (full name) 89

90 AUDIT REPORT On financial statements of S.P. Korolev Rocket and Space Public Corporation Energia summarizing the results of activity for

91 Tel: Fax: JSC BDO UNICON, Russia, , Moscow, 125 Varshavskoie shosse, building 1, section 11 AUDIT REPORT to the shareholders of S.P. Korolev Rocket and Space Public Corporation Energia Audited Entity S.P. Korolev Rocket and Space Public Corporation Energia (RSC Energia) Registered by the Interdistrict Inspectorate No.2 for Moscow Region for the main state registration number Location: , Russian Federation, Moscow Region, Korolev, ul. Lenina, 4A. Auditor Joint stock company BDO Unicon (JSC BDO Unicon) Registered by the Inspectorate of the Ministry of Taxes and Levies No. 26 in the Southern Administrative District of Moscow for the main state registration number Location: , Russia, Moscow, 125 Varshavskoie shosse, building 1, section 11. JSC BDO Unicon is a member of the professional audit association self-regulating organization of auditors "Russian Union of Auditors" (Association), the main registration number of the entry in the state register of auditors and audit organizations We have audited the accompanying accounting (financial) statements of RSC Energia for 2016 in the following composition: - Balance Sheet as of December 31, 2016; - Profit and Loss Account for 2016; - Appendices to Balance Sheet and Profit and Loss Account, including: equity change statement for 2016; cash flow statement for 2016; notes to the financial statements for Responsibility of the Entity under Audit for financial statements RSC Energia management bears responsible for preparation and fair presentation of these financial statements in accordance with the requirements of the legislation of the Russian Federation for preparation of financial statements, and internal control necessary for preparation of financial statements that are free from material misstatement whether due to fraud or error. JSC BDO Unicon, a company registered in accordance with legislation of the Russian Federation, is a member of BDO international, a chain of independent companies. BDO is a trademark of BDO chain and each member company of BDO chain. 91

92 Responsibility of the Auditor Our responsibility is to express an opinion on the fair presentation of these accounting statements based on our audit. We conducted our audit in accordance with the federal standards of auditing. Those standards require that we comply with the applicable ethical norms, as well as plan and perform the audit in a manner to obtain the reasonable assurance about whether the accounting statements are free from material misstatement. The audit involved the performance of procedures to obtain audit evidence about the amounts and disclosures in the accounting statements. The procedures selected depend on the auditors judgment, including the assessment of the risks of material misstatement, whether due to fraud or error. In making those risk assessments, the auditor considers the internal control system relevant to the entity s preparation and fair presentation of the accounting (financial) statements in order to select audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity s internal control system. An audit also included evaluation of the appropriateness of accounting policies used and the reasonableness of accounting estimates made by the management of the Entity under Audit, as well as evaluation of the overall presentation of the accounting (financial) statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion with regard to the fair presentation of the accounting (financial) statements. Opinion In our opinion, the financial statements present fairly, in all material respects, the financial position of RSC Energia as of December 31, 2016, the results of its operations and its cash flows for 2016 in accordance with Russian regulations of the financial statements. Other data The financial statements from the period from January 1 through December 31, 2016 were audited by another auditor whose report dated expressed an unmodified opinion about these financial statements. JSC BDO Unicon Director General April 21, 2017 Stamp here V.Yu. Pogulayev 92

93 S.P. KOROLEV ROCKET AND SPACE PUBLIC CORPORATION ENERGIA, AUDIT COMMISSION May 15, 2017 In accordance with the provisions of Art. 85 of the Federal Law of number 208-FZ "On Joint Stock Companies", the Audit Commission, elected by the decision of the annual general meeting of shareholders of S.P. Korolev Rocket and Space Public Corporation Energia (RSC Energy, the Company) composed of: A.V. Ardeev, K.V. Vakulin, A.A.Zelepukin, V.V. Kardanov, M.Yu. Kiseleva, A.B. Kosenko, E.P. Polezhaeva, D.N. Chirkin, with due regard to the Company's documents and materials carried out a selective test of the financial and economic activities of the Company for The following documents submitted by the Company were reviewed during the audit of the Audit Commission: Balance sheet of RSC Energia as of December 31, 2016 (form per National Index of Administrative Documents (NIAD)); Profit and Loss Account of RSC Energia for 2016 (Form per NIAD): Equity change statement of RSC Energia for 2016 (Form per NIAD); Cash flow statement of RSC Energia for 2016 (Form per NIAD); Explanations of individual indicators of financial statements; Annual report of RSC Energia work progress for 2016; Audit report of auditing company JSC BDO Unicon on accounting (financial) statements of RSC Energia for the period from January 1 through December 31, 2016; Minutes of the meetings of the Board of Directors of RSC Energia; Minutes of general meetings of RSC Energia shareholders. A check of accounts and financial statements for 2016 was carried out in the Corporation by an independent auditor, JSC BDO Unicon, being a member of the self-regulating organization of auditors of Association "Russian Union of Auditors", registered under the Principal Number of Registration Entry (PNRE) According to the auditors, the Company's financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2016, the financial and operating performance and cash flows for 2016 in accordance with Russian regulations of the financial statements. The accounting and tax records in the Company are organized in accordance with: the Tax Code of the Russian Federation; Federal Law of the Russian Federation of No.402-FZ On Accounting ; Order of the Russian Finance Ministry of No. 34-n On Approval of the regulations on accounting and financial reporting in the Russian Federation (as amended); accounting standards in accordance with the orders of the Ministry of Finance of Russia; Company's accounting policies for accounting and taxation purposes. In accordance with paragraph 3 of Article 88 of the Federal Law of No. 208-FZ On Joint Stock Companies fairness of the representations contained in the company's annual report, annual financial statements shall be confirmed by the audit commission (auditor) of the company. 93

94 The Audit Commission analyzed the results of financial and economic activities of the Company, organization of performance and effectiveness of risk management and internal control systems, as well as the random check of transactions conducted by the Company in 2016 related to financial investments, contracting of loans and credits, interested-party transactions and major transactions following which the Audit Commission made the following conclusion: taking into account the revealed facts of the financial and economic activity summarizing the Company's activities in 2016, which may affect the decisions by the owner, as well as taking into account the positive audit report, the Audit Commission considers it possible to confirm the fairness of the representations contained in the Company's annual report and annual financial statements and recommends to approve them. The present conclusion should be reviewed in conjunction with the Audit Commission Act, as well as all statements and explanatory notes being integral parts of the Company Annual Report. Chairman of the Commission A.A.Zelepukin 94

95 FINANCIAL STATEMENTS OF S.P. KOROLEV ROCKET AND SPACE PUBLIC CORPORATION ENERGIA for 2015 In accordance with paragraph 9 of the Decree of the Russian Federation Government No "On improvement of management of public companies with shares, related to the federal property, and federal state unitary enterprises", dated , financial statements shall be presented for a 2-year (current and previous) term and shall become an appendix to chapter 9 of the Annual Report of RSC Energia for

96 S.P. Korolev Rocket and Space BALANCE SHEET as of December 31, 2015 Form as per OKUD Organization Public Corporation Energia as per OKPO Taxpayer ID Number Type of Research and development activity in the field of natural sciences and technology Legal organizational form / Form of ownership as per / Mixed Russian ownership with patial federal ownership r OKOPF/ОКFS Unit of measurement: RUB thousand as per OKEI Location (address) 4A Lenin St., Korolev, Moscow Region, Date (day, month, year) INN as per OKVED Codes Notes Intangible assets Item ASSETS I. NON-CURRENT ASSETS Line Code as of December 31, 2015 as of December 31, 2014 as of December 31, Research and development results Intangible development assets Tangible development assets Fixed assets Income-bearing investments in tangible assets Financial investments Deferred tax assets Other non-current assets TOTAL of Section I 1100 Inventory II. CURRENT ASSETS Value added tax on acquired assets Accounts receivable Financial investments (excluding cash equivalents) Cash and cash equivalents Other current assets TOTAL of Section II BALANCE

97 Notes Item LIABILITIES III. CAPITAL AND RESERVES Line Code as of December 31, 2015 as of December 31, 2014 Form , p.2 as of December 31, 2013 Authorized capital (joint-stock capital, authorized 1310 fund, partners contributions) Shares repurchased Non-current assets revaluation Additional capital (without revaluation) Reserve capital Retained earnings (uncovered loss) TOTAL of Section III IV. LONG-TERM LIABILITIES Borrowings Deferred tax liabilities Estimated liabilities Other long-term liabilities TOTAL of Section IV V. SHORT-TERM LIABILITIES Borrowings Accounts payable Deferred revenue Estimated liabilities Other short-term liabilities TOTAL of Section V BALANCE Chief Executive Officer: Solntsev Vladimir Lvovich March 30,

98 Breakdown of Separate Balance Sheet Indicators As of December 31, 2015 Explanations Name of indicator Line Code As of December 31, 2015 As of December 31, 2014 As of December 31, Intangible assets (line 1110), including: 3.2 Patents, "know-how", copyrights In-process R&D Research and development results (line 1120), including: 3.3 Completed R&D In-process R&D Fixed assets (line 1150), including: 3.4 buildings and structures machinery and equipment transportation equipment Capital investments in progress (excluding subsidiary account ) Equipment to be installed Income-bearing investments (line 1160), including: 3.4 Things offered for lease Financial investments (line 1170), including: 3.6 stocks and shares of affiliates stocks and shares of dependent companies stocks and shares of other 3.6 companies long-term loans granted Other non-current assets (line 1190), including: expenditures undertaken in connection with the upcoming works under the construction project contract, which are included in the cost of projects under construction included in subsidiary account Organization of construction works uncompleted capital outlays for housing projects included in subsidiary account value-added tax for contract works in housing projects, included in subsidiary account

99 Explanations Name of indicator Line Code As of December 31, 2015 As of December 31, 2014 As of December 31, Inventory (line 1210), including: raw materials, materials and other similar objects of value Expenses in in-process inventory Accounts receivable (line 1230), including: Non-current loan receivable 3.11 Buyers and customers Advance paid out Short-term loan receivable 3.11 Buyers and customers Advance paid out Cash and cash equivalents (line 1250), including: 3.10 Money equivalents Other current assets (line 1260), including: VAT declared for refund under agreements and contracts VAT on advances received Reserve capital / Fund of capital asset and special movable valuables (line 1360), including: Backlogs formed according to basic documents Borrowings (line 1410), including: 3.13 credit accommodations Other long-term liabilities (line 1450), including: joint development means suppliers and subcontractors advances received Borrowings (line 1510), including: credit accommodations Accounts payable (line 1520), including: 3.14 suppliers and subcontractors payables to organization employees debt to state non-budgetary funds tax and due liabilities advances received liability owed to participants for payment of dividends

100 Explanations Name of indicator Line Code As of December 31, 2015 As of December 31, 2014 As of December 31, Deferred revenue (line 1530), including: special-purpose financing of research activities Estimated liabilities (line 1540), including: 3.25 estimated liabilities on holidays estimated liabilities on costs to be incurred for warranty maintenance and technical support of SS estimated liability on capital project Other short-term liabilities (line 1550), including: participation interest in construction VAT for advances paid out Chief Executive Officer: Solntsev Vladimir Lvovich March 30,

101 S.P. Korolev Rocket and Space PROFIT AND LOSS STATEMENT for January - December 2015 Form as per OKUD Organization Public Corporation Energia as per OKPO Taxpayer ID Number Type of Research and development activity in the field of natural sciences and technology Legal organizational form / Form of ownership as per / Other Mixed Russian ownership Unit of measurement: RUB thousand Date (day, month, year) INN as per OKVED r OKOPF/ОКFS as per OKEI Codes Notes Item Line Code for January - December 2015 for January - December Revenues Cost of sales 2120 ( ) ( ) Gross profit (loss) Selling expenses 2210 ( ) ( ) Administrative expenses (G&A) Sales profit (loss) Income from participation in other entities Interest receivable Interest payable 2330 ( ) ( ) 3.20 Other income Other expenses 2350 ( ) ( ) Profit (loss) before tax ( ) 3.15 Current income tax 2410 ( ) ( ) 3.16 including constant tax liabilities (assets) 2421 ( ) ( ) 3.16 Change in deferred tax liabilities ( ) 3.16 Change in deferred tax assets 2450 (21 972) (14 505) Other 2460 (72 557) (1 622) Net profit (loss): ( ) 101

102 Form , p.2 Notes Item FOR REFERENCE Result from the non-current assets revaluation, not included in the net profit (loss) for the period Result from other operations, not included in the net profit (loss) for the period Line Code for January - December 2015 for January - December Consolidated financial result for the period ( ) 3.21 Basic earnings (loss) per share Diluted earnings (loss) per share Chief Executive Officer: [signature] Solntsev Vladimir Lvovich (signature) (full name) March 30,

103 Breakdown of Profit and Loss Statement Indicators For January December 2015 Notes Name of indicator Line for January - December for January - December code Revenues (line 2110), including: research and development activities in the area of natural and technical sciences services in the area of construction, social sphere, distributive services and catering services relating to assignment of Corporate assets for value for temporary use (temporary possession and use) Cost of sales (line 2120), including: research and development activities in the area of natural and technical sciences ( ) ( ) services in the area of construction, social sphere, distributive services and catering (666172) (660860) services relating to assignment of Corporate assets for value for temporary use (temporary possession and use) (149120) (134587) Gross profit (loss) (line 2100), including: research and development activities in the area of natural and technical sciences services in the area of construction, social sphere, distributive services and catering services relating to assignment of Corporate assets for value for temporary use (temporary possession and use) Selling expenses (line 2210), including: research and development activities in the area of natural and technical, services in the social sphere, distributive services and catering (346190) (250600) Sales profit (loss) (line 2200), including: research and development activities in the area of natural and technical sciences services in the area of construction, social sphere, distributive services and catering services relating to assignment of Corporate assets for value for temporary use (temporary possession and use) Other income (line 2340), including: incomings associated with sale of property, plant and equipment and other , 3.20 assets

104 Line for January - December for January - December Notes Name of indicator code Other expenses (line 2350), including: expenses associated with equity holding of other organizations and sale of fixed , 3.20 and other assets ( ) ( ) Chief Executive Officer: Solntsev Vladimir Lvovich March 30,

105 Form as per OKUD Organization S.P. Korolev Rocket and Space Public Corporation Energia as per OKPO Taxpayer ID Number Type of activity Research and development in the field of natural sciences and technology Legal organizational form / Form of ownership as per Unit of measurement: RUB thousand / Other Mixed Russian ownership Date (day, month, year) INN as per OKVED r OKOPF/ОКFS as per OKEI Codes Пояснения Наименование показателя Код на 31 декабря на 31 декабря на 31 декабря 2012 г г г. 2. Changes in Equity Item Line Code Authorized capital Shares repurchased Additional capital Reserve capital Retained earnings (uncovered loss) Total Balance as of December 31, For 2014 Capital increase - total: including: Net profit 3211 X X X X Revaluation of assets 3212 X X X Income directly charged to the capital increase 3213 X X - X Additional share issue X X - Increase in the par value of shares X - X Legal entity reorganization

106 Item Line Code Authorized capital Shares repurchased 106 Additional capital Reserve capital Retained earnings (uncovered loss) Form , p.2 Capital decrease total: ( ) ( ) including: Loss 3221 X X X X ( ) ( ) Revaluation of assets 3222 X X - X - (83 669) Expenses directly charged to the capital decrease 3223 X X - X - (7 805) Decrease in the par value of shares X - - Decrease in the number of shares X - - Legal entity reorganization Dividends 3227 X X X X - - Changes in additional capital 3230 X X (3 538) X Changes in reserve capital 3240 X X X - - X Balance as of December 31, For 2015 Capital increase - total: including: Net profit 3311 X X X X Revaluation of assets 3312 X X - X - - Income directly charged to the capital increase 3313 X X - X Additional share issue X X - Increase in the par value of shares X - X Legal entity reorganization Capital decrease total: ( ) - ( ) ( ) including: Loss 3321 X X X X - ( ) Revaluation of assets 3322 X X ( ) X - - Expenses directly charged to the capital decrease 3323 X X - X (9 790) (9 790) Decrease in the par value of shares X - - Decrease in the number of shares X - - Legal entity reorganization Dividends 3327 X X X X ( ) ( ) Changes in additional capital 3330 X X (4 081) X Changes in reserve capital 3340 X X X - - X Balance as of December 31, Total

107 2. Adjustments introduced due to changes in the accounting policy and the correction of errors Changes in equity for 2014 Form , p.3 Item Line Code as of December 31, 2013 due to net profit (loss) due to other factors as of December 31, 2014 Capital total Prior to adjustments Adjustments due to: changes in the accounting policy correction of errors After adjustments including: Retained earnings (uncovered loss): Prior to adjustments Adjustments due to: changes in the accounting policy correction of errors After adjustments As per other capital items Prior to adjustments Adjustments due to: changes in the accounting policy correction of errors After adjustments

108 Form , p.4 3. Net Assets Item Line Code as of December 31, 2015 as of December 31, 2014 as of December 31, 2013 Net assets Chief Executive Officer: [signature] Solntsev Vladimir Lvovich (signature) (full name) March 30,

109 S.P. Korolev Rocket and Space CASH FLOW STATEMENT for January - December 2015 Form as per OKUD Organization Public Corporation Energia as per OKPO Taxpayer ID Number Type of Research and development activity in the field of natural sciences and technology Legal organizational form / Form of ownership as per / Other Mixed Russian ownership Unit of measurement: RUB thousand Date (day, month, year) INN as per OKVED r OKOPF/ОКFS as per OKEI Codes Item Line Code For January December, 2015 For January December, 2014 Cash flows from operating activities: Proceeds total including: from sales of products, goods, works and services of which: from sales of products, goods, works and services to subsidiaries and affiliates lease payments, license fees, royalties, commissions and other similar payments of which: lease payments, license fees, royalties, commissions and other similar payments from subsidiaries and affiliates from resale of financial investments from investors for the participation in shared construction other proceeds Payments total 4120 ( ) ( ) including: to suppliers (contractors) for raw materials, supplies, works and services 4121 ( ) ( ) of which: to subsidiaries and affiliates for raw materials, supplies, works and services ( ) ( ) with respect to the employee compensation 4122 ( ) ( ) debenture interest 4123 ( ) ( ) corporate income tax 4124 ( ) ( ) to suppliers (contractors) for raw materials, supplies, works and services under the participation in shared construction 4125 ( ) ( ) other payments 4129 ( ) ( ) Net cash flows from operating activities ( ) Cash flows from investing activities Proceeds total including: from the sale of non-current assets (except for financial investments) from the sale of shares (participatory interests) in other entities from the repayment of loans granted, sale of debt securities (rights of claim on cash against other parties) dividends, debenture interest and similar proceeds from participation in other entities other proceeds

110 Payments total 4220 ( ) ( ) including: with respect to the acquisition, establishment, modernization, reconstruction and preparation for use of non-current assets 4221 ( ) ( ) with respect to the acquisition of shares (participatory interests) in other entities with respect to the acquisition of debt securities (rights of claim on cash against other parties), granting of loans to other parties 4223 ( ) ( ) debenture interest included in the cost of an investment asset other payments 4229 (1 064) ( ) Net cash flows from investing activities 4200 ( ) ( ) 110

111 Cash flows from financing activities: Item Line Code For January December, 2015 Form , p.2 For January December, 2014 Proceeds total including: borrowings monetary contributions of owners (participants) from the issue of shares, increase in participatory interests from the issue of bonds, bills and other debt securities etc other proceeds Payments total 4320 ( ) ( ) including: to owners (participants) with respect to the repurchase of shares (participatory interests) from them or their withdrawal from participation for the payment of dividends and other profit distributions to the benefit of owners (participants) 4322 ( ) (331) with respect to the discharge (redemption) of bills and other debt securities, repayment of borrowings 4323 ( ) ( ) other payments 4329 (70) - Net cash flows from financing activities Net cash flows for the accounting period Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents Effect of changes in foreign exchange rates against the Russian ruble Chief Executive Officer: [signature] Solntsev Vladimir Lvovich (signature) (full name) March 30,

112 OAO RSC Energia NOTES TO THE BALANCE SHEET AND PROFIT AND LOSS STATEMENT for

113 3.1 General Information 3. General Data OAO S.P. Korolev Rocket and Space Public Corporation Energia (hereinafter referred to as the Corporation, ОАО RSC Energia ) was founded based on the Decree of the Government of the Russian Federation No. 415 dated April 29, The certificate of state registration of RSC Energia, together with a corresponding entry to the Unified State Register of Legal Entities under the main state registration No dated October 21, 2002, was issued by the Inspectorate of the Federal Tax Service of Russia No. 2 for Moscow Region. The Company is registered at the following address: 4a Lenin St., Korolev, Moscow Region, Ordinary registered non-certificated shares, State registration number А of are admitted for sales in the third level of List of Securities listed at ZAO MICEX Stock Exchange from Corporate Governance Data on Corporation Board of Directors membership as of # Full name Position 1. Yuri Veniaminovich Vlasov General Director ОАО United Rocket and Space Corporation 2. Anatoly Anatolievich General Director, ZAO Lider Gavrilenko 3. Vitaly Anatolievich Davydov Deputy General Director, Chairman of Scientific-Technical Council, Advanced Research Fund 4. Andrei Nikolaevich Klepach Deputy Chairman, Chief Economist of State Corporation Bank for Development and Foreign Economic Affairs (Vnesheconombank), governor of Vnesheconombank, Deputy Chairman of the board of directors 5. Igor Anatolievich Komarov General Director, Public Space Corporation ROSCOSMOS, Chairman of the Board of Directors 6. Andrei Sergeevich Nikitin General Director, autonomous noncommercial organization Agency for Strategic Initiatives 7. Sergei Alexandrovich Nikitin Deputy General Director, head of department ZАО Lider 8. Alexei Viktorovich Nuzhdov Deputy General Director, ZAO Lider 9. Maxim Valerievich Petrov Deputy General Director, Public Space Corporation ROSCOSMOS 10. Pavel Dmitrievich Popov First Deputy General Director, OAO United Rocket and Space Corporation 11. Vladimir Lvovich Solntsev President, RSC Energia 113

114 Single-member executive body RSC Energia single-member executive body is the President who carries out management of the Corporation day-today operation in accordance with the established procedure and within the limits of power laid down by Federal Law On Joint-Stock Companies, other Russian Federation legal acts, the Corporation Articles of Incorporation, Single-Member Executive Body Provision and Labor Agreement concluded with single-member executive body. Data on Corporation Board of Directors membership as of Full name Position 1. Vladimir Lvovich Solntsev President, RSC Energia 2. Nikolai Albertovich Brukhanov General Designer for Advanced Space Complexes and Systems 3. Pavel Vyacheslavovich Vice-President for Financial-Economic Activity Vinokurov 4. Yugeny Alexeyevich Yermakov Head of Department 5 ДП, Chief Engineer 5. Mikhail Viktorovich Komarov Vice-President for Personnel and Social Policy 6. Yelena Mikhailovna Chief Accountant Korogodina 7. Mikhail Yurievich Merkulov Vice-President for Security 8. Eugeny Anatolievich Mikrin General Designer 9. Vladimir Yefimovich Senior Vice-President for Economics and Corporate Governance Osmolovsky 10. Nikolai Anatolievich Pirogov Vice-President for interaction with government bodies 11. Igor Sergeevich Radugin General Designer of Launch Vehicles 12. Sergei Yurievich Romanov General Designer of Manned Space Complexes 13. Viktor Ivanovich Rykov Vice-President for Control-Auditing Activity 14. Sergei Anatolievich Saperov Vice-President for Organization-Legal Matters 15. Vladimir Alexeyevich Solovyov First Deputy General Designer. Head of NTTs-11Ts 16. Igor Vladimirovich Frolov General Designer of unmanned space complexes and systems 1.3 Branches (Structural Units) As of December 31, 2015, the Company had 9 standalone structural units (including branches). 114

115 List of Standalone Structural Units (Branches) No. Name Location KPP Activities 1 Voskhod Holiday Hotel 15, Sitniki instructional farm village, Sergiyev Posad District, Moscow Region Holiday hotel, vacation retreat, etc. 2 Vostok Holiday Hotel with Health Resort Functions Novomikhailovsky-2, Tuapse District, Krasnodar Krai Holiday hotel, vacation retreat, etc. 3 Krepost Health Resort 9 Mira Avenue, Kislovodsk Resort Town, Stavropol Krai Holiday hotel, vacation retreat, etc. 4 Baikonur Baikonur-8, Kyzylorda Region, Maintenance and operation of Republic of Kazakhstan Baikonur Cosmodrome facilities Other Standalone Structural Units No. Name Activities 1 Catering Administration Trade, catering 2 Social Services Administration Social services 3 Podlipki Health and Recreation Resort Holiday hotel, vacation retreat, etc. 4 Standalone structural unit to support operations at Plesetsk Cosmodrome structural unit of OAO RSC Energia in Samara Support of operations at Plesetsk Cosmodrome Development of structures composing the ascent unit, support of the ascent unit assembly 4. Significant Aspects of the Accounting Policy and Presentation of Information in the Accounting Statements 4.1 Basis for the Accounting Statements Preparation These accounting statements have been drafted based on the accounting and reporting rules applicable in the Russian Federation, in particular, the Federal Law No.402-FZ "On Accounting" dated December 6, 2011, and the Regulations on Accounting and Reporting in the Russian Federation adopted by the Decree of the Ministry of Finance of the Russian Federation No. 34n dated July 29, 1998, as well as other regulations being parts of the system regulating the accounting and reporting processes of entities in the Russian Federation, The accounting statements have been prepared in accordance with the Accounting Policy, approved by the Order of the President of RSC Energia No. 532 dated December 31, Assets, Liabilities and Transactions in Foreign Currencies Should accounting transactions be made in a foreign currency, the relevant currency s exchange rate set by the Central Bank of the Russian Federation on the date of such transactions is applied. Cash on currency and deposit accounts with banks, float, including loans granted and received, credits denominated in foreign currencies, are recorded in the accounting statements in amounts calculated based on the official exchange rate. The rate amounted to rubles and rubles for 1 US dollar, and rubles and rubles for 1 Euro as of December 31, 2015 and 2014, respectively. Exchange rate differences emerged during the year with respect to transactions with assets and liabilities, and denominated in foreign currencies, as well as its recalculation as of the reporting date, are recognized in other income and expenses. 4.3 Short-Term and Long-Term Assets and Liabilities In the Balance Sheet, the receivables and payables are recognized as short-term ones if its circulation (redemption) 115

116 periods do not exceed 12 months after the reporting date or are not set. The remaining assets and liabilities specified are presented as long-term ones. Financial investments, as well as credits and loans are classified as short-term or long-term based on the expected period of their use (circulation, possession or redemption) after the reporting date. 4.4 Changes in the Accounting Policy 2015 The Сorporation creates an estimated liability for warranty maintenance and technical support for Space System (SS). With the aim of implementing the Resolution of Board of Directors of on redistribution of types of activities between RSC Energia, ZAO ZEM RSC Energia and АО Teplo RSC Energia, new kinds of activities were open: - production of thermal energy in the form of vapor; - production of thermal energy in the form of hot water; - production of coolant. With the aim of implementing the Board Resolution No.15/2015 of on changing the schematic diagram for Corporation power supply a new kind of activity, i.e. electric power transmission was open No changes were made to the accounting policy for 2016 which can significantly affect the accounting statements. 3.5 Segment Information 4. Disclosure of Major Indicators Pursuant to PBU 12/2010 "Segment Information", based on the analysis of sources and nature of risks associated with the Corporation s operations and profits being generated thereby, in order to group data by segments of the organizational and management structure of the internal accounting system, the information on operating segments is recognized as primary, and the information on each geographical segment is recognized as secondary. Primary information - operating segments One key operating segment may be distinguished in the Corporation s activities: - research, development and experimental work on development and operation of manned orbital complexes, launch vehicles, various classes of launch vehicles, space telecommunications, broadcasting and satellite communications complexes; other segments, including: - health resort treatment services, and children s health camp services; - trade and public catering services; - social services; - other services (security measures, staff recruitment services for subsidiaries, typographical services, etc.). Indicator Research, Development and Experimental Work Health Resort Treatment Services Trade Services Social Services Other Services RUB thsd. Corporation Total For 2015 Segment revenue Earnings (loss) from segment sales

117 Interest receivable X Interest payable X Income from X participation in other entities Other income X Other expenses X Earnings (loss) before taxation of the segment As of December 31, 2015 Segment assets X Assets not allocated to segments X - Assets total X Segment liabilities X Liabilities not allocated X - to segments Liabilities - total X As of December 31, 2014 Segment assets X Assets not allocated to X - segments Assets total X Segment liabilities X Liabilities not allocated to segments X - Liabilities - total X As of December 31, 2013 Segment assets X Assets not allocated to segments X - Assets total X Segment liabilities X Liabilities not allocated to segments X - Liabilities - total X Segment revenue (income) is generated as a result of making transactions with purchasers and customers. Operations with other segments are not allowed. Income tax expenses and other similar payments are not included in the calculation of 117

118 segment s earnings (loss). Interest receivable, interest payable, income from participation in other entities, other income and expenses have not been allocated between "Research, development and experimental works" and "Other services" segments due to the inexpediency of doing so, and the lack of the basis required. The mentioned income and expenses are attributed to the Corporation s operations as a whole. Segment assets primarily consist of fixed assets, construction in progress, inventory, work in progress, accounts receivable and other current assets other than deferred tax assets, financial investments and cash. Unallocated assets are not included in segment assets, as they are not directly related to reporting segments, and the required allocation basis is lacking. The segment liabilities primarily include short-term liabilities, with the exception of liabilities to the budget for corporate income tax and liabilities for loans and credit lines received for funding of the Corporation activity as a whole, deferred tax liabilities. The combined share of the net profit of companies in which the Corporation has an interest in the share capital, the total amount of investments in these companies of the Corporation is not disclosed in this section, as it is not directly related to the Corporation's segments allocated. Secondary information geographical segments Information on geographical segments (revenue from sales to outside customers and financial result from segment s operations) is presented in the table below: Geographical Segments Sales Revenue (without VAT) RUB, thsd. Production Cost Sales Profit Return on Sales, % Domestic market EU countries Angola USA Egypt Japan Total Revenue is presented by geographical segments in market locations. Since production facilities of the Corporation are located in the territory of the Russian Federation, assets and investments are referred to a single geographical segment distinguished based on the assets location - the Russian Federation. 3.6 Intangible Assets Accounting of intangible assets of the Corporation is performed in accordance with PBU 14/2007 "Accounting of Intangible Assets" adopted by the Decree of the Russian Ministry of Finance No. 153n dated December 27, In the accounting statements, intangible assets are presented at their historical (replacement) cost net of depreciation accumulated during the entire period of their use. Intangible assets of the Corporation were not revaluated in The depreciation of intangible assets is performed using the straight-line method. 118

119 Indicator Line Code Intangible Assets and Research, Development and Engineering (R&D) Expenses Intangible Assets Availability and Flow Period Opening balance Changes over a period Closing balance Acquired Disposed Depreciation Impairment Revaluation Historical Historical charged losses Historical Accumulated Historical cost 3 cost 3 cost 3 depreciation 3 cost 3 Accumulated depreciation and impairment losses 3 Accumulated depreciation and impairment losses 3 Accumulated depreciation and impairment losses Intangible assets total including: Patents, licenses, know-how, copyrights Industrial designs and models Software, databases 5100 for ( 2 448) ( 678) 113 ( 935) ( 3 270) 5110 for ( 1 758) ( 707) 112 ( 802) ( 2 448) 5101 for ( 2 445) ( 678) 113 ( 934) ( 3 266) 5111 for ( 1754) ( 703) 110 ( 801) ( 2 445) 5102 for ( 3) 10 ( ) - ( 1) ( 4) 5112 for ( 4) - ( 4) 2 ( 1) ( 3) 5103 for ( -) - ( -) - ( -) ( -) 5113 for ( -) - ( -) - ( -) ( -) 119

120 Intangible Assets and Research, Development and Engineering (R&D) Expenses Historical Cost of Internally Generated Intangible Assets Indicator Line Code As of December 31, As of December 31, As of December 31, Total including: Patents, licenses, know-how, copyrights Industrial designs and models Software, databases Fully Repaid Intangible Assets Indicator Line Code As of December 31, As of December 31, As of December 31, Total including: Patents, licenses, know-how, copyrights Industrial designs and models Software, databases

121 3.7 R&D Expenses Non-current assets on separate sub-accounts of account 08 "Non-current assets" include research and development work in progress. Separate subaccounts of account 04 "Intangible assets" include finished research and development work being used in the manufacture of goods (performance of works, provision of services). An accounting unit for R&D expenses is an inventory item. An inventory item is an aggregate of expenses incurred with respect to the work performed, the results of which are independently used in the manufacture of goods (performance of works, provision of services) or for management needs The write-off of expenses is performed using the straight-line method. The period over which R&D expenses are to be written off is determined based on the expected service life of R&D results obtained. The expected service life and the expenses write-off method on each R&D subject shall be set by the Decision of the Technical Commission on the R&D results use, approved by the Project Manager. R&D expenses not providing any positive result shall be written-off to other expenses of the accounting period. In the Balance Sheet, finished R&D work being used in the manufacture of goods (performance of works, provision of services) is recognized in line 1120 "Research and development results". Expenses for research and development work in progress are recorded in line 1170 "Other non-current assets". Balance Sheet line 1120 "Research and development results" demonstrates the amount of total expenses for finished R&D work being used in the Corporation s operations, which is equal to RUB thsd, unfinished and unexecuted R&D work which is equal to RUB thsd. 121

122 R&D Results Availability and Flow Indicator Line Code Period Opening balance Changes over a period Closing balance Disposed Part of cost written-off as Part of cost Part of cost Part of cost Acquired expenses over a Historical cost written-off as Historical cost written-off as Historical cost written-off as period expenses expenses expenses R&D total including: Assets created as a result of R&D performed at the expense of the Corporation Assets created as a result of R&D funded out of special-purpose financing resources 5140 for ( -) ( ) - ( -) ( -) 5150 for ( -) ( ) - ( -) ( -) 5141 for ( -) ( ) - ( -) ( -) 5151 for ( -) ( ) - ( -) ( -) 5142 for ( -) - ( ) - ( -) ( -) 5152 for ( -) ( ) - ( -) ( -) 122

123 Unfinished and Unexecuted R&D and Uncompleted Operations on Intangible Asset Acquisition Indicator Line Code Period Opening balance Changes over a period Closing balance Expenses over a period Written-off as expenses not provided any positive result Accepted for recording as intangible assets or R&D Expenses for unfinished research and development total including: R&D performed at the expense of the Corporation R&D funded out of specialpurpose financing resources Uncompleted operations on intangible asset acquisition total including: inventions industrial designs databases, software, licenses 5160 for ( -) ( ) for ( -) ( ) for ( -) ( ) for ( -) ( ) for ( -) ( -) for ( -) ( ) for ( 55) ( 3 318) for ( -) ( 3 039) for ( 55) ( 3 312) for ( -) ( 3 039) for ( -) ( 6) for ( -) ( -) for ( -) ( -) for ( -) ( -) - 123

124 3.8 Fixed Assets Fixed assets include assets conforming to the requirements of the Russian Accounting Principle "Accounting of fixed assets" (PBU 6/01) adopted by the Decree of the Russian Ministry of Finance No. 26n dated March 30, 2001, and accepted for recording as appropriate from the time of their putting into operation. In the accounting statements, fixed assets are presented at their historical (replacement) cost net of depreciation accumulated during the entire period of their use. As of December 31, 2015, the land plots owned by OAO RSC Energia were revaluated. The depreciation of the fixed assets acquired and constructed prior to January 1, 2002 is performed based on uniform depreciation rates approved by the Decree of the USSR Council of Ministers No "On Uniform Depreciation Rates for the Full Recovery of Fixed Assets of the USSR National Economy" dated October 22, 1990, and of those acquired on or after January 1, 2002 at rates calculated based on estimated useful lives thereof. The useful life of fixed assets is established in accordance with the Classification of Fixed Assets, approved by the Decree of the Government of the Russian Federation No. 1 dated January 1, The depreciation is performed using the straight-line method. Assets with a useful life exceeding 12 months are included in the inventory, provided that their historical cost is below RUB 40 thsd. per unit. As of December 31, 2014, the depreciated cost of fixed assets available on the Corporation s books amounted to RUB thsd. Other Non-current Assets Balance Sheet line 1190 Other non-current assets as of December 31, 2015 demonstrates the amount of RUB thsd, including - expenses undertaken in connection with future construction project contract works, which are covered by the cost of projects under construction, included in subsidiary account Organization of construction work to the amount of RUB thsd; - uncompleted capital outlays for housing projects included in subsidiary account Housing projects to the amount of RUB thsd; - value-added tax for contract works in housing projects, included in subsidiary account VAT for contract works in housing projects to the amount of RUB thsd; Investment contribution under contract No.ИД of SUE PI «MOSP» included in subsidiary account Accounts receivable and payable for creation of non-current assets in organization to the amount of RUB thsd. As of December 31, 2013, the following adjustments were made: the amount of RUB thsd is excluded from balance sheet line 1150 Fixed assets and included in balance sheet line 1190 Other non-current assets. The amount of RUB thsd is excluded from line 1220 Value added tax on acquired assets and included in line 1190 Other non-current assets. As of December 31, 2014, the following adjustments were made: the amount of RUB thsd is excluded from balance sheet line 1150 Fixed Assets and included in line 1190 Other non-current assets. The amount of RUB thsd is excluded from line 1220 Value added tax on acquired assets and included in line 1190 Other non-current assets. 124

125 Fixed Assets Fixed Assets Availability and Flow Indicator Fixed assets (excluding incomebearing investments in tangible assets total including: Buildings Structures Transfer devices Machinery and Equipment Transport facilities Production and household equipment Perennial plantings Land plots Other fixed assets Line Period Opening balance Changes over a period Closing balance Code Acquired Disposed Depreciation Revaluation Historical cost 3 Accumulated depreciation 6 Historical cost 3 Accumulated depreciation 6 charged Historical cost 3 Accumulated depreciation 6 Historical cost 3 Accumulated depreciation for ( ) ( ) ( ) ( for ( ) ( ) ( ) ( ) 5201 for ( ) ( ) ( ) ( ) 5211 for ( ) ( ) ( ) ( ) 5202 for ( ) ( ) ( ) ( ) 5212 for ( ) ( ) ( ) ( ) 5203 for ( ) ( ) 371 ( ) ( ) 5213 for ( ) ( ) ( ) ( ) 5204 for ( ) ( ) ( ) ( ) 5214 for ( ) ( ) ( ) ( ) 5205 for ( ) ( ) ( ) ( ) 5215 for ( ) ( 1 668) ( ) ( ) 5206 for ( ) ( 9 831) ( 5 948) ( ) 5216 for ( ) ( 5 309) ( 5 645) ( ) 5207 for ( 10) - ( -) - ( -) ( 10) 5217 for ( 10) - ( -) - ( -) ( 10) 5208 for ( -) ( -) - ( -) ( -) 5218 for ( -) - ( 655) - ( -) ( -) 5209 for ( 5 549) 152 ( 10) 10 ( 152) ( 5 691) 5219 for ( 5 375) 182 ( 8) 8 ( 182) ( 5 549) 125

126 Indicator Line Code Fixed Assets Fixed Assets Availability and Flow Period Opening balance Changes over a period Closing balance Acquired Disposed Depreciation Revaluation Historical cost 3 Accumulated depreciation 6 Historical cost 3 Accumulated depreciation 6 charged Historical cost 3 Accumulated depreciation 6 Historical cost 3 Accumulated depreciation 6 Accounted as a part of income-bearing investments in tangible assets total including: Property provided for commercial rent Property provided for commercial rent 5220 for ( ) 266 ( 1 588) 66 ( 8 019) ( ) 5230 for ( ) - ( 3 529) 287 ( 7 948) ( ) 5221 for ( ) 266 ( 1 588) 66 ( 8 019) ( ) 5231 for ( ) - ( 3 529) 287 ( 7 948) ( ) 5222 for ( -) - ( -) - ( -) ( -) 5232 for ( -) - ( -) - ( -) ( -) 126

127 Change in the Value of Fixed Assets as a Result of Further Construction, Further Equipping, Reconstruction and Partial Liquidation Indicator Line Code For For Increase in the value of fixed assets as a result of further construction, further equipping, reconstruction total including: Buildings Structures Transfer devices Machinery and equipment Transport facilities Production and household equipment Perennial plantings Land plots Other fixed assets Decrease in the value of fixed assets as a result of further construction, further equipping, reconstruction - total including: Buildings 5270 ( -) ( 6 459) 5271 ( -) ( 1 546) Structures 5272 ( -) ( 460) Transfer devices 5273 ( -) ( 27) Machinery and equipment 5274 ( -) ( 3 311) Transport facilities 5275 ( -) ( -) Production and household equipment 5276 ( -) ( 1 112) Perennial plantings 5277 ( -) ( -) Other fixed assets 5278 ( -) ( 3) 127

128 Other Use of Fixed Assets Indicator Line Code As of December 31, As of December 31, As of December 31, Leased out fixed assets held on the balance sheet Leased out fixed assets held on off-balance-sheet 5281 accounts Leased fixed assets held on the balance sheet Leased fixed assets held on off-balance-sheet accounts Real estate accepted for operation and in use 5284 undergoing the state registration Mothballed fixed assets Other use of fixed assets (pledge, etc.)

129 4.5 Construction in Progress Balance Sheet line 1150 "Other non-current assets" demonstrates: Indicator Construction in progress and uncompleted operations on fixed asset acquisition, modernization, etc. - total including: Acquisition, construction and creation of fixed assets Line Code Period Capital Investments in Progress Opening balance Expenses over a period Changes over a period Closing balance Accepted for recording as fixed Written-off assets, or cost increase 5240 for ( ) ( ) for ( ) ( ) for ( -) ( ) for ( ) ( ) for ( -) ( ) Modernization and reconstruction 5252 for ( ) ( ) Acquisition of land plots 5243 for ( -) ( -) for ( -) ( 2 386) - etc for ( -) ( 3 701) for ( -) ( ) Housing construction 5245 for ( ) ( -) for ( ) ( 1 228)

130 4.6 Financial Investments Financial investments with non-determined market values are accounted at their historical costs. The historical cost of financial investments acquired for a fee is recognized as the amount of actual expenses for its acquisition, except for value added tax and other compensated taxes. The analytical accounting of financial investments is performed by investment groups and security types. Disposed financial investments not having a market value are recorded at historical cost of each item. Income and expenses from financial investments are recognized in other income and expenses. Financial investments are presented net of the accrued reserve for impairment of financial investment objects, with respect to which the signs of sustained reduction in their values have been detected (the reserve amount equaled to RUB thsd. and RUB thsd. as of December 31, 2015 and 2014, respectively). As of December 31, 2013, changes were made including the transfer of the amount of RUB thsd from shortterm financial investments (line 1240 of the balance sheet) to cash (line 1250 of the balance sheet). As of December 31, 2014, changes were made including the addition of the borrowing amounted to RUB thsd for ZAO PO Cosmos to long-term financial investments (line 1170 of the balance sheet) having excluded them from short-term financial investments (line 1240 of the balance sheet). As of December 31, 2015, changes were made including the addition of the borrowing amounted to RUB thsd for ООО Energia-Oversees to long-term financial investments (line 1170 of the balance sheet) having excluded them from short-term financial investments (line 1240 of the balance sheet). Indicator Pledged financial investments - total including: Bills etc. Financial investments transferred to third parties (except through sale) - total including: Bills etc. Other Use of Financial Investments Line Code As of December 31, As of December 31, As of December 31, Other use of financial investments

131 Indicator Line Code Financial Investments Financial Investments Availability and Flow Period Opening balance Changes over a period Closing balance Historical cost Acquired Disposed (repaid) Interest accrual Established reserves Historical cost Accumulated adjustments 7 Historical cost Accumulated adjustments 7 (including bringing the historical cost to the nominal value) Current market value (impairment losses) Accumulated adjustments 7 Long-term - total 5301 for ( ) ( ) - - ( ) ( ) 5311 for ( ) ( ) ( -) ( ) including: 5302 for ( -) ( 5) - - (16 874) ( -) Stocks and shares in subsidiaries 5312 for ( -) - ( -) - - ( -) ( -) Stocks and shares 5303 for ( -) - ( -) - - ( -) ( -) in affiliates 5313 for ( 756) - ( ) ( -) ( -) Other 5304 for ( ) 1 ( ) - - (88 222) ( ) 5314 for ( ) ( 1) - - ( -) ( ) Loans granted 5309 for ( -) ( ) - - ( -) ( -) 5319 for ( -) ( -) - - ( -) ( -) Short-term total 5305 for ( ) ( -) - - ( ) ( ) 5315 for ( -) - ( ) ( ) ( ) including: 5306 for ( -) - ( -) - - ( -) - - ( -) Debt securities (bonds, bills) 5316 for ( -) - ( ) ( -) - - ( -) Loans granted 5307 for ( ) ( -) - - ( ) ( ) 5317 for ( -) - ( -) - - ( ) ( ) Other 5308 for ( -) ( -) - - ( -) - - ( -) 5318 for ( -) - ( -) - - ( -) - - ( -) Etc ( -) ( -) Financial 5300 for ( ) ( ) - - ( ) ( ) Investments - total 5310 for ( ) ( ) ( )

132 4.7 Inventory Inventory is accepted for recording at its actual cost (in the amount of actual expenses for its acquisition). The write-off cost of inventory shall be evaluated based on its average production cost. The average value is calculated using the weighted estimate as of the month-end. As of December 31, 2015, the Corporation doesn t have any inventory, which has become obsolete, lost its historical cost in whole or in part, or the current market price of which has decreased, on its books. Therefore, as of 31 December 2015, the reserve for tangible assets impairment was not created by the Corporation. 3.8 Expenses, Work in Progress and Finished Goods Work in progress is evaluated based on total actual expenses incurred, including the appropriate portion of general expenses. General expenses are monthly allocated to orders in proportion to the increase in values of items composing the "Payroll expenses" section, Direct Manufacturing Expenses, over the reporting month. The administrative expenses are allocated in accordance with guidebook Matrix of primary function cost categorization for a group of administrative expenses. 3.9 Prepaid Expenses Costs incurred by the Corporation over the accounting period though related to future periods are recognized as prepaid expenses. Prepaid expenses comprise as follows: Expenses for obtaining licenses to perform certain activities; Payment for the non-exclusive right to use software products; Expenses related to the construction work arrangement. The mentioned expenses are evenly written-off as intended or based on special calculations over the periods they pertain to. 132

133 Indicator Line Code Inventory Inventory Availability and Flow Period Opening balance Changes over a period Closing balance Production cost Reserve for impairment Disposed Impairment losses Production cost Proceeds and expenses Production cost Reserve for impairment Inventory turnover between groups (types) Reserve for impairment Inventory - total including: Raw materials and supplies Work in progress Prepaid expenses Finished goods and goods for resale 5400 for ( ) ( ) X ( ) 5420 for ( -) ( ) - ( ) X ( ) 5401 for ( -) ( ) ( -) 5421 for ( -) ( ) ( -) 5402 for ( ) ( ) ( ) 5422 for ( -) ( ) - ( ) ( ) 5403 for ( -) - ( -) ( -) 5423 for ( -) - ( -) ( -) 5404 for ( -) ( ) ( -) 5424 for ( -) ( ) ( -) Other 5405 for ( -) ( ) ( -) 5425 for ( -) ( ) ( -) etc. 133

134 Pledged Inventory Indicator Inventory unpaid as of the reporting date total including: Pledge agreements Line Code As of December 31, As of December 31, As of December 31, Inventory pledged under contract total - - including: Raw materials and supplies - - Work in progress Finished goods and goods for resale Other

135 3.10 Cash Pursuant to the Decree of the Russian Ministry of Finance No. 66n "On Forms of Accounting Reports of Organizations" dated July 2, 2010, and para 18 of PBU 23 "Cash Flow Statement", cash flow statement indicators shall be indicated in the currency of the Russian Federation - rubles. Cash flow values in a foreign currency shall be converted into rubles at the official exchange rate established by the Central Bank of the Russian Federation on the date of payment effecting or receipt Accounts Receivable Trade receivables are determined based on the prices specified in agreements between the Corporation and purchasers (customers), including VAT. The Balance Sheet line 1230 "Accounts Receivable" demonstrates the value of trade receivables (net of reserves for doubtful debts) in the amount of RUB thsd. as of December 31, Accounts receivable include advances for future settlements paid to other entities under the agreements. As of December 31, 2015, the amount of advances is RUB thsd., and the reserve for advances paid equaled to RUB thsd. 135

136 Accounts Receivable Availability and Flow Indicator Long-term accounts receivable - total including: Trade receivables Advances paid Other accounts receivable Line Code Period Opening balance Changes over a period Closing balance Accounted under contract Reserve for doubtful debts Through business transactions (amount of debt under a transaction, operation) 8 Acquired Disposed Reclassificati Interest, penalties and other accruals due 8 Repayment Write-off to the financial result 8 Reserve recovery on from longterm receivables to short-term receivables Accounted under contract Reserve for doubtful debts 5501 for (28 944) ( ) ( -) ( ) ( ) 5521 for ( -) ( ) ( -) - ( ) ( ) 5502 for (28 944) ( ) ( -) ( ) ( 9 550) 5522 for ( -) ( ) ( -) - ( -) ( ) 5503 for ( -) ( ) ( -) - ( ) ( -) 5523 for ( -) ( ) ( -) - ( ) ( -) 5504 for ( -) ( 1 312) ( -) - ( -) ( -) 5524 for ( -) ( 1 977) ( -) - ( -) ( -) Short-term accounts receivable total including: Trade receivables Advances paid Other accounts receivable 5510 for ( ) ( ) ( 209) ( ) 5530 for ( ) ( ) ( ) ( ) 5511 for ( 231) ( ) ( -) ( ) 5531 for (58 725) ( ) ( -) ( 231) 5512 for (91 613) ( ) ( 1) ( ) 5532 for ( ) ( ) ( ) ( ) 5513 for ( ) ( ) ( 208) ( ) 5533 for ( -) ( ) ( 863) ( ) Total 5500 for ( ) ( ) ( 209) X ( ) 5520 for ( ) ( ) ( ) X ( ) 136

137 Overdue Accounts Receivable Indicator Line Code As of December 31, As of December 31, As of December 31, Accounted under contract Book value Accounted under contract Book value Accounted under contract Book value Total including: Trade receivables Advances paid Other accounts receivable

138 3.12 Capital and Reserves The authorized capital amounts to RUB , and in 2015 its value was not changed. At 2014 year-end a loss was made, as a result dividends for 2014 were not paid. The Charter of the Corporation provides for the establishment of a reserve fund in the amount of at least 5% of the authorized capital. The fund is formed by means of compulsory annual deductions equal to minimum 5% of the net profit. The reserve fund of the Corporation is completely formed Loans and Credits Expenses for loans and credits received are recognized as costs of the period, during which they have been incurred (current expenses), and are included in other expenses. Additional expenses associated with obtaining loans and credits are included in other expenses as they are paid. Interest on borrowings is evenly (monthly) accrued, and is recognized as other expenses in the accounting periods, which these accruals pertain to. The Corporation transfers long-term payables on loans and credits received to short-term payables at the time when there are 365 days left to repay the principals of such borrowings pursuant to loan agreements. Line 1410 Borrowings of the balance sheet demonstrates bank loan proceeds with maturity exceeding 365 days as of December 31, The line 1510 "Borrowings" demonstrates Corporation s debts with maturity not exceeding 365 days under loan agreements with banks as of December 31, As of December 31, 2014 the following adjustments were made: the amount RUB thsd. is excluded from line 1410 «Borrowings of section Long-term liabilities and added to line 1510 Borrowings of section Short-term liabilities Account Payable As of December 31, 2013 the following adjustments were made: the amount RUB thsd was excluded from line 1520 Accounts payable and included in line 1450 Other long-term liabilities. As of December 31, 2014 the following adjustments were made: the amount of RUB thsd. Is excluded from line 1520 Accounts payable and included in line 1450 Other long-term liabilities. 138

139 Accounts Payable Availability and Flow Indicator Long-term accounts payable - total including: Trade payables Other Advances received Short-term accounts payable - total including: Trade payables Advances received Other accounts payable Total Line Code Period Opening balance Changes over a period Acquired Disposed Reclassification Through business Interest, penalties Repayment Write-off to the from long-term transactions and other accruals financial result 8 payables to shortterm payables (amount of debt due 8 under a transaction, operation) 8 Closing balance 5551 for ( ) ( -) ( -) for ( ) ( -) ( -) for ( -) ( -) ( -) for ( 100) ( -) ( -) for ( -) ( -) ( -) for ( -) ( -) ( -) for ( ) ( -) ( -) for ( ) ( -) ( -) for ( ) ( -) for ( ) ( 1 350) for ( ) ( -) for ( ) ( 1 350) for ( ) ( -) for ( ) ( -) for ( ) ( -) for ( ) ( -) for ( ) ( -) X for ( ) ( 1 350) X

140 Overdue Accounts Payable Indicator Line Code As of December 31, As of December 31, As of December 31, Total including: 5591 Trade payables Other

141 3.15 Taxation Value-added tax The value added tax (VAT) on goods, products, works and services sold is calculated as of the date of actual shipment (delivery) of such goods, products, works and services. Income tax For the purposes of the income tax calculation, income is recognized in the reporting (tax) period, during which it occurred, regardless of the actual receipt of cash or any other property (works, services), and (or) property rights (accrual basis). The income tax determined based on the accounting earnings (provisional income tax expenses) amounted to RUB thsd. and RUB thsd. in 2015 and 2014, respectively. The current income tax recognized in the line 2410 of the Profit and Loss Statement equaled to RUB thsd. in 2015, RUB thsd. in Deferred Taxes In its accounting and reporting documents, the Corporation discloses deferred tax assets and liabilities, as well as permanent tax assets and liabilities, i.e. the amounts, which may influence the income tax value in the current and/or forthcoming accounting periods. Permanent Differences Permanent differences have emerged in the Corporation s accounting as a result of the excess of actual expenses included in the accounting earnings (loss) calculation over expenses accepted for tax purposes, with respect to which certain cost restrictions are provided, and other differences. The sum of permanent tax liabilities (assets) calculated based on permanent differences is recorded in the line 2421 of the Profit and Loss Statement in 2015 and amounted to RUB thsd. and recorded in the line 2421 in 2014 and amounted to RUB thsd., respectively. Deductible Temporary Differences In 2015, deductible temporary differences in the amount of RUB thsd. emerged as a result of as follows: recognition of targeted funding in records for accounting and tax purposes; recognition of service sector losses in records for accounting and tax purposes; recognition of other income and expenses in records for accounting and tax purposes. Changes in deferred tax assets are shown in the line 2450 of the Profit and Loss Statement and equaled to RUB thsd. in 2015, and RUB thsd. in Taxable Temporary Differences In 2015, taxable temporary differences in the amount of RUB thsd. emerged as a result of as follows: evaluation of work in progress in records for accounting and tax purposes; recognition of R&D expenses in records for accounting and tax purposes; depreciation of fixed assets in records for accounting and tax purposes; recognition of other income and expenses in records for accounting and tax purposes. 141

142 Changes in deferred tax liabilities are shown in the line 2430 of the Profit and Loss Statement in the amount of RUB thsd. in 2015 and RUB thsd. in Deferred Revenue As of December 31, 2015, the Balance Sheet line 1530 Deferred Revenue indicates the amount of target funding received equal to RUB thsd Recognition of Income (Revenue) Revenue from the provision of services (performance of works) is recognized as services are provided to customers (or upon the works completion) and payment documents are submitted to them. It is recorded in accounts net of value added tax, excises and similar payments. The Corporation recognizes revenue from the performance of works, provision of services, selling of goods with a long manufacturing cycle in its accounts upon the completion of such works, services, or goods manufacture in general. Other income of the Corporation may include: proceeds related to the provision of Corporation s assets for temporary use for a fee; proceeds related to the provision of rights arising from patents on inventions, industrial designs and other intellectual property of the Corporation for a fee; proceeds related to the participation in authorized capitals of other entities; proceeds from the sale of fixed assets, inventory, financial investments, foreign currency; interest received from the provision of Corporation s funds for use; difference between historical and nominal values of securities Production Expenses Indicator Line Code For For Material costs Payroll expenses Social benefit costs Depreciation Other expenses Total by elements Change in balances (increase [+], decrease [-]): Work in progress Finished products Total expenses for ordinary activities

143 3.20 Other Income and Expenses RUB thsd. Other income / expenses Income and expenses related to compensation of losses of Corporation Earnings and losses of previous years identified in the reporting year Income Expenses Income Expenses Exchange and sum differences Additional Corporation staff expenses (oneoff bonuses, material aid, etc.) Expenses for works and services under terminated or non-concluded agreements, works performed at the expense of the Corporation Bank services Sale of fixed assets Sale of other assets Expenses associated with obtaining loans and credits Reserves for doubtful debts Reserves for impairment of financial investments Reserve for reduction in values of nonmonetary physical things Fines, penalties, forfeits, taxes and charges paid out of Corporation s funds Income from the recovery of the unused reserve for doubtful debts Income from the recovery of the unused reserve for impairment of financial investments Income from the recovery of the unused reserve for impairment of tangible assets Saves on investment project Other income (expenses) Total other income / expenses Earnings Per Share The margin of basic earnings per share is 525 rubles. The basic earnings of RUB thsd. and average weighted number of ordinary outstanding shares in the amount of shares are used for calculation. During 2015 a number of ordinary shares remained unchanged. 143

144 The Profit and Loss Statement does not indicate diluted earnings per share as the Corporation does not have any convertible securities and contracts on ordinary share sale/purchase from its issuer on the books Security Indicator Line Code As of December 31, As of December 31, As of December 31, Received - total including: Pledge Bank guarantee agreement, surety agreement Granted total including: Pledge Bank guarantee agreement, surety agreement Government Assistance Indicator Line code For For Budgeting funds received total Including: Recurrent costs Investments in non-current assets Opening balance Received for the year Returned for the year Closing balance Public budget loan total ( -) ( -) - Including: ( -) (objective) ( -) - etc. - - ( -) - Notes: 10. The accounting year is indicated. 11. The previous year is indicated. 12. In case of reapprisal column Historical cost demonstrates current market value or current (replacement) cost. 13. The reporting date of the reporting period is presented. 14. The year preceding the previous year is indicated. 15. Nonprofit organization entitles column Accumulated amortization and Accrued amortization as Accumulated depreciation and Accrued depreciation 16. Accumulated adjustment is determined as: A difference between the historical and current market values for financial investments, which can determine the current market value; Difference accrued during the circulation period between the historical cost and nominal value for debt security, which cannot determine the current market value; Value of investment depreciation reserve created at the previous balance sheet date, for financial investments, which do not determine the current market value. 17. The data is released by deducting the payables received and redeemed (written-off) within one accounting period. 144

145 3.24 Related Parties With regard to the Corporation there is no controller having more than 50% of the Corporation shares, or having a right to give mandatory instructions. The main shareholders of the Corporation are OAO URSC and AO Razvitiye. The participatory interest of OAO URSC is %. The participatory interest of AO Razvitiye is %. The Corporation is included into a corporate group of OAO URSC. A list of entities belon ging to the corporate group is provided on the Internet page ( - disclosure.ru/portal/files.aspx?id=1615&type=6, Information on the Board of Directors and the Management Board of the Corporation is provided in paragraph 1.2 of these explanations. Companies in which the Corporation has an interest in the authorized capital A list of companies in which OAO RSC Energia has an overall control. Name Place of registration / location Authorized Capital Corporation s participatory interest as of December 31, 2015 Corporation s participatory interest as of December 31, 2015 (%) Income from participation for 2014, RUB thsd ZAO ZEM RSC 4A Lenin St. Korolev, RUB RUB Energia Moscow Region thsd. thsd. ZAO VKB RSC 26B Zemetsa St., RUB RUB Energia Samara thsd. thsd. ZAO PO Kosmos RUB 200 thsd. RUB 200 thsd. 100 LLC IK Razvitie LLC RSC Energia Finance AO Teplo RSC Energia LLC OIME CJSC BELROSSAT LLC Energia SAT ZAO Energia- Telecom Room 1, bldg. 1,Vnukovo-3, Borovskoye Highway, Moscow 4A Lenin St., Korolev, Moscow Region 4A Lenin St., Korolev, Moscow Region 4A Lenin St., Korolev, Moscow Region 4A Lenin St., Korolev, Moscow Region Office 416, 15 bldg. 5, P. Brovki St., Minsk 1a, Grabina St., Korolev, Moscow Region 4A Lenin St., Korolev, Moscow Region RUB thsd. RUB thsd RUB 500 thsd. RUB 500 thsd RUB thsd. RUB thsd RUB RUB thsd. thsd. $ $ RUB thsd. RUB thsd RUB thsd. RUB thsd

146 Name Place of registration / location OJSC Space Regatta Consortium List of other companies, in which RSC Energia is a shareholder (participant). Authorized Capital Corporation s participatory interest as of December 31, 2015 Corporation s participatory interest as of December 31, 2015 (%) Income from participation for 2014, RUB thsd A Lenin St., Korolev, RUB 100 thsd. RUB 30 thsd Moscow Region OJSC NPK REKOD 40 / 6 bldg.1, 3rd proezd Maryinoy Roshchi, Moscow RUB thsd. RUB thsd In the reporting year, Corporation s shares in authorized capitals of affiliates were not changed. List of other affiliates in which RSC Energia is a shareholder (participant) with the participatory interest in the authorized capital exceeding 2% Name Place of registration / location Limited liability company Energia- Cert Authorized Capital Corporation s participatory interest as of December 31, 2015 Corporation s participatory interest as of December 31, 2015 (%) Income from participation for 2014, RUB thsd A Lenin St., Korolev, RUB 1000 RUB 19.5 thsd Moscow Region thsd. Limited liability company Center of Automated Hydraulic Devices (LLC AHD Center) Corporation ILS International Launch Services, Inc. (ILS International Services, Inc.)_ Open joint-stock company Gazprom space systems ОАО Gazprom space systems 4A Lenin St., Korolev, Moscow Region Registered office: Wilmington, Delaware, Name of Agent registered at the address of the registered office "Si Ti Corporation" 77B, Moscow St., Schelkovo, Moscow Region RUB 10 thsd. RUB 1.9 thsd RUB thsd. 170 shares (non-voting share, type В) RUB thsd

147 Name Place of registration / location Sea Launch S.a.r.l. (SEA LAUNCH S.А.R.L.) Authorized Capital Corporation s participatory interest as of December 31, 2015 Corporation s participatory interest as of December 31, 2015 (%) Income from participation for 2014, RUB thsd , rue Charles Martel, USD 15 - L-2134 Luxembourg, USD Grand Duchy of Luxembourg Limited liability company International Space Systems (LLC ISS) Closed joint stock company Certification Center for Rocket and Space Technology (ZAO IsSKT) 71, Izmailovo road, building 8, Moscow 4 PIonerskaya St., Korolev, Moscow Region RUB thsd. RUB thsd. RUB 396 thsd RUB 0.25 thsd Operations with Related Parties In the reporting year, the Corporation performed works for and provided services to the related parties as follows: RUB. thsd. Sales revenues (excluding Affiliate Name Nature of Relationship Type of operations VAT) in 2015 CJSC ZEM RSC Energia Renting services, security Overall control services CJSC PO Kosmos Renting services, security Overall control services LLC OIME Renting services, security Overall control services CJSC Teplo RSC Energia Renting services, security Overall control services Total

148 In the accounting period, the following affiliates provided services to (performed works for) the Corporation: Affiliate Name CJSC ZEM RSC Energia CJSC Teplo RSC Energia CJSC VKB RSC Energia CJSC PO Kosmos CJSC Energia-Telecom Nature of Relationship Overall control Overall control Overall control Overall control Overall control Type of operations Activities, services and using space technologies Heat production services Performance of R&D activities and experimental works for execution of RSC Energia space programs Air-passenger, freight and mail operations Development, production of SS-based satellite communication components and systems RUB thsd. Sales revenues (excluding VAT) in Total Status of cash payments of the Corporation with the affiliates as of December 12, 2015 and December 12, 2014: Company Name Accounts Receivable 148 Accounts Payable RUB thsd. CJSC ZEM RSC Energia LLC OIME Reserve ( ) (984.1) LLC IMPROVEN LLC IK Razvitie CJSC PO Kosmos Reserve ( ) ( ) CJSC VKB RSC Energia Reserve ( ) ( ) LLC RSC Energia Finance CJSC Teplo RSC Energia Reserve ( ) ( ) CJSC Energia Telecom LLC Energia Space Technologies Total Prices for products, goods, works, and services provided to the Corporation by its subsidiaries and supplied by the Corporation to its subsidiaries are set based on the contracts concluded in accordance with market prices. The Corporation settles accounts with its subsidiaries in cash.

149 The amount of interest accrued on loans granted by the Corporation to its affiliates (CJSC PO Cosmos), was RUB thsd. and RUB thsd. in 2015 and 2014, respectively. The amount of interest accrued on loans granted by the Corporation to its largest other related entities (Energia Overseas, LLC and Energia - Logistics, LLC) equaled to RUB thsd. and RUB thsd. in 2015 and 2014, respectively. The Corporation lent its largest affiliate (Energia Overseas, LLC and Energia - Logistics, LLC) and other organizations at the rate of from 6% to 16% and from 4.5% to 11%. The balance on granted loans was RUB thsd. and RUB thsd. as of and , respectively. The remuneration paid to the administrative and management staff of the Corporation over 2015 and 2014 amounted to as follows: Indicator Short-term remuneration (labor compensation, taxes accrued thereon and other mandatory payments) RUB thsd The administrative and management staff of the Corporation includes as follows: the President, General Designer, vice presidents, deputy General designers, heads of research and development centers, departments, branches, directorates, project offices, centers, administrations and services, program directors and other persons (exercising powers of an executive body under a power of attorney), administration and management personnel. The remuneration of the President is approved by the Chairman of the Corporation s Board of Directors. The remuneration of members of the Corporation s Board of Directors is approved by the General Meeting of shareholders. The payment of remuneration to the members of the Corporation s Board of Directors was RUB thsd. and RUB thsd. in 2015 and 2014, respectively Estimated Liabilities In the Balance Sheet for 2013, the line 1540 "Estimated liabilities contains the value of estimated liability on carryover vacations of Corporation s employees amounting to RUB thsd. as of December 31, In the Balance Sheet for 2014, the line 1540 "Estimated liabilities contains the value of estimated liability on carryover vacations of Corporation s employees amounting to RUB thsd. as of December 31, In the Balance Sheet for 2015, the line 1540 "Estimated liabilities contains the value of estimated liability on carryover vacations of Corporation s employees amounting to RUB thsd. as of December 31,

150 Indicator Line Code Opening balance Recognized Repaid Written-off as a surplus amount Closing balance Estimated liabilities total ( ) ( -) including: ( -) ( -) - Estimated liabilities on claims Estimated liabilities on onerous contracts Estimated liabilities on reorganization Estimated liabilities on warranties of goods sold quality ( -) ( -) ( -) ( -) ( -) ( -) - Estimated liabilities on vacations ( ) ( -) Estimated liabilities on warranty maintenance and performance of technical support of SS/ Estimated liabilities on capital investment project ( ) ( -) ( -) ( -) Contingent Assets and Liabilities The Corporation is one of the parties in the following court legal proceedings: 12. Under legal proceedings on the part of the Boeing and Aker Groups for a total amount of about 112 million US dollars, on October 11, 2010 the arbitrator made on award for termination of the legal [proceedings on procedural grounds (because the case is out of his jurisdiction0 and reimbursement of the Corporation legal proceedings costs. On January 11, 2011 the Boeing and Aker Groups of Companies submitted notice of appeal regarding the arbitrator award to the court of Stockholm. On the court of appeal determined to reject the claims lodged by the Boeing and Aker (Kvaerner). On the Boeing and Aker (Kvaerner) filed an appeal against the decision of the Board of Appeals to the Supreme Court of Sweden. In July 2014 the Aker (Kvaerner) withdrew its claims, the case with respect to the Aker (Kvaerner) made claims had been dismissed. On December 21, 2015 the Supreme Court of Sweden Satisfied the Boeing s notice of appeal and returned the case to the Board of Appeals of Stockholm. A new trial may start in the Board of Appeals in the event that the Boeing Company will submit relevant application. As the situation is currently uncertain, it is hardly should take on this matter. In view of the above, a real assessment of respective risks cannot be made. 13. On February 1, 2013 the court of central district, California, received the statement of claim Space Company (BCSC) which included the 4 claims: bringing suit against Design Bureau Yuzhnoye and PA Yuzhmash zavod (Ukraine) for breach of the Agreement on Creation of the Sea Launch Companies dated May 3, The amount claimed is 55 million US dollars. bringing suit against DB Yuzhonoye/PA Yuzhmash for breach of the Agreement on the Guarantees and Security dated February 3, The amount claimed is 78 million US dollars. bringing suit against OAO RSC Energia (FR), Energia Overseas LLC (USA) and Energia Logistics Ltd (USA) for breach of the Agreement on Creation of the Sea Launch Companies dated May 3, The amount claimed is 92 million US dollars. bringing suit against OAO RSC Energia (FR), Energia Overseas LLC (USA) and Energia Logistics Ltd (USA) for breach of the Agreement on the Guarantees and Security dated February 3, The amount claimed is 130 million US dollars. 150

151 In addition, claims are made to collect interest on all the amounts claimed (at the rate to be determined by the court). In June 2013 the Kvaerner (Aker) company added its claims to those made by the Being Company and the Boeing Commercial Space Company (BCSC). The amount claimed by the Kvaiener Company is determined at the rate of at least 84,7 million US dollars; besides, the claims are made to collect interest at the rate to be determined by the court ruling. RSC Energia does not agree to the claims lodged and on July 5, 2013 RSC Energia raised appropriate objections, as well as the counter claim for the amount of 430 million US dollars. In July 2014 the Kvaener (Aker) Company withdrew its claims; insofar as the Kvaerner s (Aker s) claims are concerned, the case is dismissed. The litigation proceedings still go on insofar as the Boeing s and the BCSC s claims are concerned. On September 28, 2015 consideration of the claims made by the Boeing against RSC Energia took place; preliminary judicial act was delivered pointing out that plaintiffs arguments (the Boeing and BCSC companies) concerning their claims to RSC Energia were reasonable enough while RSC Energia s arguments were not well-grounded; that the evidence produced on the matter was sufficient t take a decision without hearing the case in court. On November 10-23, 2015 the hearings concerning the Boeing s claim against the Energia Overseas LLC and Energia Logistics Ltd were conducted. Making one overall final decision of the court with respect to the Boeing s claims to RSC Energia and the Energia Overseas LLC and Energia Logistics Ltd is pending. By estimate of the lawyers team the court decision is going to be finalized in March - April There is no fixed date for delivery of court judgment (has not determined yet by the US court); by initial forecast, the court decision delivery was expected till the end of Mach; later the forecast deferred delivery of the curt decision to April May. As on , no court decision has been delivered yet. In view of international peculiarities of this case, it does not seem possible to make any forecast about its final outcome for the resent. 14. Trial concerning the matter of insolvency (bankruptcy) of the organization. Plaintiff (Applicant) is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Defendant (Debtor) is SUE NPTs SPURT (4 Zapadny 2st proyezd, Zelenograd, Moscow, ). Matter in contest is the creditor s claim for recovery of rubles within the framework of the matter of insolvency (bankruptcy) of the organization. Arbitration court of the first instance issued judicial determination on that the claim was to be entered into the schedule of creditors. As for SUE NPTs SPURT, proceedings in bankruptcy are opened. By Moscow Arbitration court determination of the bankruptcy proceedings were prolonged till Court proceedings on the matter of recovery of damages under government contract. Plaintiff is the RF Ministry of Defense (19 Znamenka Street, Moscow, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Matter in contest is the claim for recovery of damages in the amount of rubles for failure to meet commitments under government contract on schedule. By the court judgement of the RF Ministry of Defense claims were satisfied in full scope. By ruling of the ninth Arbitration court of appeal of the court judgment remained unchanged; by RSC Energia on is to be considered in the Arbitration court of Moscow district on Court proceedings on the matter of recovery of actual costs under government contract. Plaintiff is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Defendant is the RF Ministry of Defense (19 Znamenka Street, Moscow, ). Matter in contest is the claim for recovery of actual costs in the amount of ,17 rubles under the government contract. By the court judgement of the claims lodged by RSC Energia were satisfied in full volume. By ruling of the ninth Arbitration court of appeal of the judgment was revoked; the cassation appeal was filed with the Arbitration court of Moscow district; sitting of the court was fixed for Court proceedings on the matter of recovery of damages under government contract Plaintiff is Federal Space Agency (42 Schepkina Street, Moscow, GSP-6, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Matter in contest is the claim for recovery of damages under the government contract in the amount of rubles. The Arbitration court of Moscow made an award of to refuse to satisfy the claims lodged in full scope. By ruling of the ninth Arbitration court of appeal of the award remained unchanged; the cassation appeal was not satisfied. 18. Court proceedings on the matter of recovery of damages under government contract Plaintiff is Federal Space Agency (42 Schepkina Street, Moscow, GSP-6, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Matter in contest is the claim for recovery of damages under the 151

152 government contract in the amount of ,50 rubles. By ruling issued by the arbitration court of Moscow Region ( ) the proceedings were suspended. 19. Court proceedings on the matter of recovery of damages under government contract. Plaintiff is Federal Space Agency (42 Schepkina Street, Moscow, GSP-6, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Matter in contest is the claim for recovery of damages under the government contract in the amount of ,13 rubles. By the court judgement of the claims were satisfied in full scope. On the case is to be considered in the court of appeal. 20. Court proceedings on the matter of recovery of damages under government contract. Plaintiff is Federal Space Agency (42 Schepkina Street, Moscow, GSP-6, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Matter in contest is the claim for recovery of damages under the government contract in the amount of ,32 rubles. Arbitration court of Moscow made an award on to refuse to satisfy the claims lodged in full scope. By ruling of the court of appeal of the award remained in force. 21. Court proceedings on the matter of declaration as invalid of non-statutory acts. Plaintiff in RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Defendant is MRI of FTS of Russia No. 8 relative to the largest tax bearers. Matter in contest is declaration as invalid the decision No /30R of and the claim No. 8 of Arbitration court of Saint-Petersburg and Leningrad Region made an award to satisfy partially the claims for Court proceedings on the matter of recovery of money in the amount of ,17 rubles under the contract. Plaintiff is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Defendant is OAO Teploset (2q 50th anniversary of VLKSM Street, Korolev city, ). Matter in contest is recovery of principal debt and damages for failure to transfer the money in due time. Amicable settlement was reached and approved by the Arbitration court of Moscow Region on Court Proceedings on the matter of fulfillment of the obligations in kind. Plaintiff is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Defendant is FKU Tesntroavtomagistral (139 Novaya Street, vil. Akulovo, Odintsovo district, Moscow Region, ). Matter in contest is fulfillment of the obligations to install plastic noiseproof windows in RSC Energia s buildings. By ruling of the Arbitration court in Moscow Region the statement of claim was accepted, sitting of the court was fixed for Court proceedings on the matter of recovery of money in the amount of ,79 rubles under the Contract. Plaintiff is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Defendant is AO PKP IRIS (9 Krasnoarmeyskaya Street, Rostov-on-Don, ). Matter in contest is recovery of principal debt and damages for failure to transfer the money in due time. The Arbitration court of Moscow Region made the award to satisfy the Corporation s claims in full scope. Consideration of the case in the court of appeal is fixed for Court proceedings on the matter of recovery of damages under government contract. Plaintiff is Federal Space Agency (42 Schepkina Street, Moscow, GSP-6, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Matter in contest is the claim for recovery of damages under the government contract in the amount of ,80 rubles. By the court decision of the claims were satisfied partially. By ruling of the tenth arbitration court of appeal of , the court decision remained unchanged; the appeal was not satisfied. 26. Court proceedings on the matter of recovery of damages under government contract. Plaintiff is federal Space Agency (42 Schepkina Street, Moscow, GSP-6, ). Defendant is RSC Energia (4A Lenin Street, Moscow Region, Korolev city, ). Matter in contest is the claims for recovery of damages under the government contract in the amount of rubles. By the court judgement of the claims were rejected to be satisfied in full scope Risks Related to Business Operations 152

153 In the course of its operations, RSC Energia is largely exposed to risks related to the economy and financial markets of the Russian Federation. Should one or more risks of those listed below arise, OAO RSC Energia will undertake all possible measures to minimize its negative consequences. The license requirements established by the applicable legislation are duly observed by the Corporation. Changes in the legislation, as well as draft documents in the field of core activities licensing provided on official websites of licensing authorities are carefully examined. In order to reduce some of the risks to the extent possible, the Corporation undertook certain protective measures primarily related to the implementation of the main production program of the Corporation (in particular, insurance against certain risks is common). However, it should be noted that working out preliminarily adequate measures to counteract unforeseen events is difficult due to the uncertainty about how the situation unfolds Industry Risks At present, the demand for space services (both manned and unmanned) in the global market is gradually increasing. After termination of the Space Shuttle program, Russia became dominant in the manned flight market. The demand for OAO RSC Energia-produced manned transport vehicles Soyuz and logistics vehicles Progress is likely to be stable for the short-term (at least for the ISS operation period). It is determined by the need to meet the international commitments of Russia to deliver international crew members and cargo to support the station, including the propellant. Starting from 2012, the US Space Agency NASA may independently perform cargo delivery and return cargo items from the ISS by means of logistics vehicle Dragon, and from 2013 by means of another logistics vehicle Cygnus. Resulting from this, cargo delivery by Progress vehicles have slightly decreased. The demand for the Corporation s operations related to the ISS operation and utilization, including International projects on Earth and space exploration from the ISS, building new ISS elements, advanced developments in the area of manned cosmonautics, including the development of an advanced manned transportation system and long-term programs of deep space exploration is expected to be stable. These plans are reflected in the draft Federal Space Program of Russia for a period from 2016 till Due to the plans of the US commercial companies being implemented on development of manned space vehicles, Russia s dominance in the global market of manned space flights will be completed by the end of the current decade, and the competition will be increasing. The Corporation has no competitors in this area of activity in the internal market. Prospects for further development of the Russian manned cosmonautics in the area of transport spacecraft are associated with the development of a new-generation manned transport spacecraft. Space industry risks of the Corporation are associated with an increase in the product cost. Risks due to economic problems experienced by subcontractors of the traditional Corporation cooperation can be growing. At present, the demand for space services to be provided using unmanned spacecraft (SC) tends to grow steadily in the Russian and global markets. Nowadays, the main areas of growth in the global market of commercial communications and broadcasting space vehicles are as follows: Creation of a SC with improved performance (service life, capacity, throughput, etc.) in C and Ku bands in order to perform the planned replacement of existing SC; Manufacture of SC in an advanced frequency range Ka-band - allowing to boost up the satellite throughput, provide new types of satellite communications services the broadband Internet access, and arrange high-speed trunk communications channels. The most critical factors determining space industry risks in the global market of unmanned spacecraft are as follows: keen competition between major global manufacturers of spacecraft; new global players from the countries with high rates of economic growth (such as China, India, Japan) 153

154 entering the market of unmanned spacecraft manufacture and launch; political instability in certain developing countries forming the potential market for the Corporation s products and services; trend towards the global space services market integration into the common open area of free partnership for space services and technologies manufacture and application. It should also be noted that there is a strong competition between national spacecraft manufacturers, such as CJSC M.F. Reshetnev ISS, JSC RCTs Progress, S.A.Lavochkin NPO, etc. OAO RSC Energia gives considerable consideration to research and development activities dedicated to the improvement and mastering of new technologies for building unmanned spacecraft. Activities for developing a new modification of the universal satellite bus are in good progress. In order to master and introduce advanced technologies in the field of designing and manufacturing SC for various purposes, OAO RSC Energia is promoting their cooperation with the leading European company Airbus Defence & Space, specifically within the joint venture Energia Satellite Technologies (LLC Energia SAT). With regard to DM-type upper stages produced by OAO RSC Energia, which are used with LVs, such as Proton and Zenit, there is a competition with Russian upper stage manufacturers - M.V. Khrunichev SRP RSC (Breeze-M upper stages are used with Proton-M LVs) and S.A.Lavochkin NPO (Fregat-SB upper stages are designated to be used with Zenit, Soyuz LVs). Therefore, the Corporation constantly takes measures to improve and advance operating characteristics of the DM-type upper stage, which is considered to be one of the best in the world in terms of energy efficiency, accuracy of heavy payload (SC) delivery to specified high-energy orbits/paths, and environmental safety Country and Regional Risks The core activities of the Corporation are concentrated in Russia. Its operations may be impacted by the risks associated with the political situation, and the industrial output downturn. The domestic political situation remains stable despite of crisis developments in the financial and mineral markets. The Corporation operation can be affected by risks related to the phase-out or short deliveries of certain commercial component parts which could increase risks of nonfulfillment of some contracts for delivery of products. The Corporation is registered and performs its operations in a rapidly developing area the Moscow Region, which is considered to be one of the most promising regions with its economy growing at a fast pace. Moscow Region is an economically stable area. Geographic features of this region provide for extremely low risks of exposure to disasters (including hurricanes, floods, earthquakes, etc.). This area is located in the central part of the Russian Federation, where the transportation is well developed. Moscow Region is connected with all other Russian and world regions via motor, railway and air transport, which allows to absolutely eliminate the risk of possible transportation termination due to the remoteness of the region and/or its being hard to reach. Moscow Region is regarded as one of the most politically stable areas, which does not directly border upon warfare zones, as well as the regions with a high probability of introducing the state of emergency. At the same time, the geographical remoteness of the Corporation from sites of vehicle prelaunch processing at technical and launching complexes of cosmodromes (including Baikonur Cosmodrome) generates risks of the Corporation s property loss and damage during its transportation to the destination point. The Corporation provides for insurance against such risks. Due to the fact that the Corporation performs certain operations in the territory of the Republic of Kazakhstan (Baikonur Cosmodrome), the impact of country risks related to the unfavorable development of political and economic factors in interstate relations is possible. However, the agreement between Russia and Kazakhstan on the use of Baikonur Cosmodrome up to 2050, and the Treaty on the Euro-Asian Economic Union came in force on January 1, 2015 which is provide free flow of goods, movement of capital, services and manpower allow to assess this risk as insignificant. The Corporation implements certain projects for foreign customers located in African countries, the unstable political 154

155 situation in the mentioned region may adversely impact the Corporation s operations due to the possible customers waiving to extend the contracts Financial Risks OAO RSC Energia s operations and its financial stability, as well as the proceeds from sales of goods (works, services) and earnings are impacted by inflation risks, changes in foreign exchange rates and loan interest rates. Should there be no compensating component in prices for goods to be sold, the inflationary processes resulting in costlier products and materials used in business operations may have a significant negative effect on the Corporation s net profit value. If inflationary processes show an upward tendency, it will result in an increased cost of products manufacture which could affect unfavorably operation As the RF Central Bank forecasted, inflation in 2015 would vary from 8% at the beginning of the year to 11.5% by the end of the year. Changes in interest rates may affect the Corporation s financial and credit activities, as the enterprise extensively uses borrowed resources in its operations. Also, the government is currently taking a range of measures, such as the real sector crediting system improvement, which is sure to result in positive consequences for the enterprise. Due to the measures being undertaken, risk of changing interest rates is highly improbable for the Corporation. Exchange rate risks are important to OAO RSC Energia due to the fact that the Corporation is the exporter of scienceintensive and high-technology products; accordingly, its proceeds are partly denominated in US dollars or Euros, while expenses are mostly incurred in rubles. In this regard, the results of financial and economic activity are definitely effected by changes of inflation and exchange rates. The contracts with foreign contractors are valuated in US dollars and Euro, so their high rates against ruble are beneficial for the Corporation. The Corporation is also exposed to credit and liquidity risks. Credit risks are associated with possible consequences unfavorable for the Corporation at non-performance (improper performance) of obligations by other persons for work performed or services rendered, and borrowed assets provided thereto. The following activities are carried out to reduce the credit risk: analysis of the accounts receivable for the identification of the doubtful debt; by the analysis results a doubtful debts allowance is created; regular monitoring of the timing of payments. The liquidity risk is associated with the Corporation abilities in a timely manner and to the full extent to repay financial liabilities existing at the balance sheet date: accounts payable to suppliers and contractors, indebtedness under credits and loans for debt holders. To improve the solvency and liquidity indicators the Corporation is carrying out tax planning, procurement planning, implementation inventory, production equipment and spare parts unclaimed throughout the year Legal risks One of the most important components with regard to legal risks is a tax risk. The laws introducing amendments to the Tax Code of the Russian Federation in terms of changes in specific tax calculation and payment procedures are passed annually. This adds complexity to making middle-term and long-terms forecasts with respect to taxpayer activities, and complicates the tax planning as a whole. The tax regulations instability exposes the Corporation to the risk of being charged and having to pay rather high penalties and fines (despite its intention to operate in strict compliance with the legislation), as well as may lead to an increase in the aggregate tax burden. The Corporation regularly reviews the amendments being introduced to the existing tax legislation in order to reduce tax risks. A change of customs regulation rules can definitely and sufficiently impact the Corporation activity. The Corporation is a participant in foreign economic relations, part of its commitments was undertaken to be in foreign currency; therefore, the Corporation is running the risks related to exchange adjustment change. At the present time, liberalization of foreign exchange legislation is underway; the reporting period showed no significant changes in exchange rate adjustment regulations; therefore, the above risks are assessed as low. The reporting period revealed no changes in judicial practice concerning operation of the Corporation (including 155

156 licensing issues) which could affect its performance, as well as the results of current legal proceedings to which the Corporation is a party. Changing requirements for the Corporation core business licensing can entail certain extra expenses associated with getting a new license or extension or replacement of the license already in place; however, the Corporation forecasts the risk of arising events like that as most unlikely. OAO RSC Energia meets all license requirements in a timely manner and in full scope; no difficulties in extension of validity of the existing licenses are forecasted by the Corporation. According to the Russian Federation Government Decree No 160 Provision on Space Activity Licensing of , the requirements for space activity licensing have not changed much. The above risk that the Corporation is running can be considered minimal 3.28 Events After the Reporting Date Over the period between the reporting date and the accounting statements execution date, the Corporation didn't face any events, which impacted or were likely to have a significant impact on the financial condition, cash flows or operating results President [signature] V.L. Solntsev March 30, 2016 Stamp here 156

157 Audit report to the shareholders of S.P. Korolev Rocket and Space Public Corporation Energia Audited entity: Full name: S.P.Korolev Rocket and Space Public Corporation Energia. Abbreviated name: RSC Energia. Primary registration number: (Certificate of Entry in the Unified State Register of Legal Entities Series 50 No of October , issued by Inter-District Inspectorate No. 2 in Moscow Region). Location: 4a Lenin St., Korolev, Moscow Region, , Russian Federation Audit organization: Full name: Closed Joint-Stock Company "HLB Vneshaudit". Abbreviated name: CJSC "HLB Vneshaudit". Primary registration number: (Certificate of Entry in the Unified State Register of Legal Entities Series 77 No of October 4, 2002, issued by Inter-District Inspectorate, Ministry of Taxation of Russia No.39 in Moscow). Location: , 25-27/2, Bolshya Yakimanka, Moscow (phone 8 (495) , fax 8 (495) ). Member of the self-regulatory organization of auditors of the non-commercial partnership Institute of Professional Auditors. Principal Number of Registration Entry (PNRE) in the Register of auditors and audit organizations We have audited the attached accounting statements of Rocket and Space Public Corporation Energia consisting of the Balance Sheet as of December 31, 2015; Profit and Loss Statement for 2015; Statement of Changes in Equity and Cash Flow Statement for 2015; Notes to the Balance Sheet and Profit and Loss Statement, for Global in Reach, Local in Touch CJSC " HLB Vneshaudit " 12, Krasnopresnenskaya emb., access 3, office 701, Moscow, , Russia, Phone: ( , Fax: (495) , info@vneshaudit.ru, TIN Account in Moscow bank of Sberbank of Russia, Moscow CA BIK