The consolidated report of RAINBOW TOURS S.A. Capital Group for the fourth quarter of 2009 prepared in accordance with IFRS 1 CONTENT 1. Consolidated quarterly financial statement .......................................................................................... 3 1.1. Consolidated balance sheet ............................................................................................................... 4 1.2. Profit and loss account ....................................................................................................................... 5 1.3. Consolidated statement of changes in equity ................................................................................... 8 1.4. Consolidated cash flow statement ................................................................................................... 10 2. Selected explanatory data .................................................................................................................... 12 2.1. Issuer’s data ...................................................................................................................................... 12 2.2. The base and the form of preparing the financial statement ........................................................ 13 2.3. Information on rules applied while preparing the quarterly report as on 31 December 2009 .... 13 2.4. Information on rules changes (Accounting Policies), and on essential changes in estimated data, including adjustments of provisions, and deferred tax provision and assets, impairment losses for assets ........................................................................................................................................... 31 2.5. Brief description of achievements and failures in the report period including the most significant events with regards to these achievements and failures .............................................................. 31 2.6. Type and amounts of items affecting the assets, liabilities, net financial result or cash flows, which are untypical with regard to their type, amount or influence exerted ............................... 34 2.7. Explanations concerning seasonality or periodicity of issuer’s activities in the period presented. ........................................................................................................................................................... 34 2.8. Presentation of the results according to particular activity segments of Rainbow Tours S.A. Capital Group .................................................................................................................................... 35 2.9. Information on issue, repurchase and repayment of non-equity and equity securities.............. 35 2.10.Dividends paid (total or per share), divided into ordinary shares and other shares. ................. 36 2.11. . Significant events after the interim period, which were not reflected in the financial statement for the first quarter of 2009. ............................................................................................................ 36 2.12.Changes in contingent liabilities or assets, which took place after the end of the last financial year.................................................................................................................................................... 37 2.13.Description of organization of the Issuer’ s Capital Group, indication of consolidated entities 37 2.14. Result of changes in economic entity’s structure within the interim period including mergers of economic entities, acquisition or sales of subsidiaries, and long-term investments, restructuring and abandonment of activity. ......................................................................................................... 37 3. Other additional information .............................................................................................................. 38 2 3.1. Selected financial data including basic items of abridged financial statement ( translated into Euro as well) ...................................................................................................................................... 38 3.2. The Position of the Management Board concerning possibility of realizing previously published forecasts for the given year, in the light of results presented in the quarterly report in comparison to the anticipated results ............................................................................................ 40 3.3. Shareholders holding at least 5% of the total number of votes at the Issuer’s General Assembly. ........................................................................................................................................................... 40 3.4. Company’s shares or right to shares (options) held by the members of the Management Board and Supervisory Board. .................................................................................................................... 40 3.5. Information on significant legal proceedings concerning the Company. ....................................... 41 3.6. Information on transactions concluded with associated units. ...................................................... 41 3.7. Information on credit or loans warranties, or guaranties granted by the issuer or its subsidiary to, jointly, one entity or its subsidiary, if total value of warranties and guarantees granted constitute at least 10% of Issuer’s equity ........................................................................................ 43 3.8. Other information, which are in opinion of the Issuer, significant to asses situation of staff, assets and finance and its changes, and information essential to assess possibility of realization of liabilities by the Issuer................................................................................................................. 43 3.9. Indication of factors, which in the opinion of the Issuer will influence results reached within at least following quarter ..................................................................................................................... 43 1. Consolidated quarterly financial statement 3 1.1. Consolidated balance sheet Rainbow Tours Capital Group S.A. Rainbow Tours S.A. Legal basis: IFRS description Fixed assets Tangible fixed assets Intangible assets Investment assets Related undertakings Investment in subsidiary Investments in associates under equity method Other financial assets Finance lease receivables Deferred tax assets Other assets Current assets Stocks Trade and other receivables Other financial assets Financial lease receivables Cash and cash equivalents Other assets Fixed assets for sale Total assets Rainbow Tours Capital Group S.A. RTSA 100% PLN’000 assets D a 31 December 2008 a 31 December 2009 13 177 10 497 2 538 2 172 8 386 8 275 0 0 0 0 0 0 2 000 0 237 34 0 16 16 45 411 52 976 4 0 31 648 39 954 125 0 0 0 4 282 5 972 9 352 7 050 0 58 588 0 63 473 RTSA 100% PLN’000 4 Rainbow Tours S.A. 1 Legal basis: IFRS description Equity Authorized capital Spare capital ( without results) Valuation reserves Ownership interest Accumulated profit Accumulated profit (loss) Net profit for the financial period Currency differences of entities operating abroad Shareholders equity in dominating entities Minority interest Long-term liabilities Bank credit and loans Other financial commitments Deferred tax liability Pension liabilities Long-term capital lease obligation Long-term provisions Current liabilities Trade and other liabilities Leave and pension liabilities Current capital lease obligations Short-term bank debt Other financial commitments Short-term provisions Liabilities directly related to fixed assets for sale Total liabilities liabilities C b 31 December 2008 31 December 2009 17 870 23 872 1 200 1 205 16 860 16 860 5 0 0 0 -2 157 5 269 6 434 4 327 -8 591 942 1 530 0 17 438 23 334 432 538 1 454 492 1 017 252 0 0 332 223 26 17 79 0 0 0 39 264 39 109 16 953 21 460 119 131 178 66 3 183 4 906 542 542 18 289 12 004 0 58 588 0 63 473 1.2. Profit and loss account 5 Rainbow Tours Capital Group S.A. Rainbow Tours S.A. Legal basis: IFRS description Continuing activity, sales revenues Continuing activity, cost of sales Gross profit (loss) on sales Continuing activity, costs of disposal Continuing activity, general administration costs Continuing activity, other operating income Continuing activity, other operating cost Profit (loss) on operating activity Continuing activity, return on investment Continuing activity, loss on investment Continuing activity, finance revenue Continuing activity, financial cost Net financial profit (loss) Profit (loss) sharing of associates Profit sharing of associates Loss sharing of associates Pretax earnings (loss) Continuing activity, income tax Current tax Deferred tax Deferred tax increase in charges Deferred tax decrease in charges Profit (loss) from continuing activity Profit (loss) from abandoned activity Net profit from abandoned activity Net loss from abandoned activity Net profit (loss) For shareholders in dominating entity For minority shareholders Number of preferred shares in the period (with respect to dividend) Degree of preference Number of ordinary shares in the period (with respect to dividend) Profit (loss) per share from continuing activity (basic) Profit (loss) per share from continuing activity diluted Profit (loss) per share from continuing and abandoned activity -basic Profit (loss) per share from continuing and RTSA 100% PLN’000 account C c 0 1-12.2008 1-12.2009 269 872 288 407 237 412 253 296 32 460 35 111 22 994 20 561 18 822 14 716 478 1 310 560 301 -9 438 843 957 0 1 718 2 092 457 2 623 1 261 426 0 0 0 0 0 0 -8 177 1 269 -369 -221 338 135 -31 -86 45 86 14 0 -8 546 1 048 0 0 0 0 0 0 -8 546 1 048 -8 591 942 45 106 0 0 0 0 0 0 0 6 abandoned activity -diluted 7 1.3. Consolidated statement of changes in equity Rainbow Tours Capital Group S.A. RTSA 100% PLN’000 Rainbow Tours S.A. Legal basis: IFRS statement of changes in equity C description Total equity opening balance Shareholders’ equity in dominating entity opening balance Authorized capital opening balance Issue Other increases amortization Other decreases Authorized capital closing balance Spare capital opening balance Agio Other increases Other decreases Spare capital closing balance Revaluation reserve opening balance Created purposely Other increases Used purposely Other decreases Revaluation reserve closing balance Own shares opening balance Purchase of own shares Other increases Disposal of own shares Other decreases Own shares closing balance Undistributed result brought forward opening balance Results carried forward Other increases Dividend payment Result carried forward “-“ Other decreases Undistributed result brought forward, closing balance Profit in the period Loss in the period Net profit (loss) opening balance Currency exchange differences of entities operating abroad Shareholders’ equity in dominating activity closing balance Minority interest opening balance e 1-12. 2008 1-12.2009 25 022 17 870 24 635 17 438 1 200 1 200 5 0 0 0 1 200 1 205 16 725 16 860 0 135 0 0 16 860 16 860 0 5 0 5 0 0 5 5 0 0 0 0 0 0 0 0 0 4 275 -2 157 2 159 0 6 484 0 0 0 6 434 4 327 942 8 591 0 -8 591 942 1 530 0 17 438 23 334 387 432 8 Other increases Other decreases Minority interest, closing balance total equity closing balance 45 106 0 0 432 538 17 870 23 872 9 1.4. Consolidated cash flow statement Rainbow Tours Capital Group S.A. Rainbow Tours S.A. Legal basis: IFRS cashFlow RTSA 100% PLN’000 C description I. Profit (loss) before tax II. Total adjustments Amortization and depreciation Foreign exchange gains (losses) Interest and profit sharing (dividends) Investment profits (losses) Movements in reserves Movements in stocks Movements in receivables, and prepayments and accruals Movements in short-term liabilities, prepayments, except loans, credit and finance lease Other adjustments Net cash from operating activities Income tax paid Net operating cash flow Interest received Dividends received from entities consolidated under equity method Sales revenue from financial assets available for sale Sales revenue from fixed assets Sales revenue from short term-securities/ purchase of short-term securities Sales revenues from short-term securities Purchase of short-term securities Contract (repayment) of loans (credits) Repayment of loans ( credits) Granting loans and credits Inflows from sales of subsidiary/ purchase of subsidiary Inflows from sales of subsidiary Purchase of subsidiary Contracting/repayment other Contracting other Repayment other Cost of fixed asset acquisition Net cash from operating activity Inflows from issue of shares Contracting /repayment of loans/credits Contracting credit /loans 0 e 1-12.2008 d 1-12.2009 -8 177 1 269 -4 423 -5 303 610 495 -3 0 38 296 -19 -647 394 -523 0 -10 -15 426 -3 171 12 131 -3 096 -2 148 1 353 -12 600 -4 034 -359 -180 -12 959 -4 214 6 22 0 0 0 2 000 92 21 0 0 0 0 0 0 3 058 -500 3 183 -550 125 -50 0 0 0 0 0 0 0 2 958 0 2 958 0 0 913 126 2 243 4 375 5 0 0 1 723 0 1 723 10 Repayment of credits/loans Other contracting/ repayment Other contracting Other repayment Finance lease repayment Dividends paid Interest paid Net cash from financial activity Increase/ decrease in cash and cash equivalents Net change in cash Movements due to foreign exchange gains/losses Opening balance of cash and cash equivalents Closing balance of cash and cash equivalents 0 0 0 51 0 51 0 0 177 181 0 0 20 305 -192 1 288 -10 908 1 449 -10 908 1 690 0 0 15 190 4 282 4 282 5 972 11 2. Selected explanatory data 2.1. Issuer’s data The name of the Company: Rainbow Tours S.A. The address of the Issuer: 90-361 Lodz, Piotrkowska street 270. A competent court: District Court for Łódź – Śródmieście, XX Department of National Court Register KRS: 0000178650 NIP ( tax identification number) : 725-18-68-136 Regon: 473190014 Core business activity: Core business activity of the Dominating Entity and the Capital Group according to Polish Classification of Activities comprise the following activities: 1. 2. 3. 4. 5. 6. 79.12.Z. – tour operator activities 79.11.A. – travel office activities 79.11.A. – travel agent activities 79.90.A. – activities of tour leaders and tour guides 79.90.A – activities concerning providing tourist information 79.90.A –n other reservation services, not classified elsewhere A duration period The Dominating entity and the Capital Group is established for an undefined period of time. Periods for which the consolidated financial statement and the comparable financial data are presented. The abridged consolidated financial statement of Rainbow Tours S.A. Capital Group includes data as at 31 December 2009 and 31 December 2008 for the comparable data in the balance sheet and for four quarters of 2009 (that is from 1st January to 31 December 2009) for four quarters of 2009 (that is from 1 January to 31 December 2008) for the comparable data in the profit and loss account. The presented financial statement is a consolidated financial statement comprising Rainbow Tours S.A, which is the Dominating entity and subsidiaries. Owing to disposal of shares of subsidiary OOO Rainbow Tours Ukraina ( the equivalent of Polish Sp. z o.o.) the results of the Capital Group include only revenues and costs of this company in the period when it was controlled by Rainbow Tours. The below chart presents the state of the Capital Group as at 31 December of 2009. 12 Rinbow Tours S.A Rainbow Tours Ukraina capital share 100%* Portal Turystyczny Sp. z o.o. Rainbow Tours - Biuro Podróży sp. z o.o. capital share 65% capital share 50% Travelovo Sp. z o.o. capital share 75,4% Traveltech Sp. z o.o. capital share 71% ABC Świat Podróży Sp. z o.o. capital share 100% * The company OOO Rainbow Tours Ukraina was sold on 23 December 2009. The details are described in the Current Report NO 44/2009 and the Amended Current Report No 44/2009 as of 22 January 2010. Information on personal composition of the Management Board and the Supervisory Board of the Dominating Entity As on 31 December 2009 the bodies comprising the Dominating Entity consisted of following persons: The composition of the Management Board of Rainbow Tours S.A. is as follows: Grzegorz Baszczyński – the President of the Management Board Remigiusz Talarek – the vice-chairman of the Management Board Tomasz Czapla - the vice-chairman of the Management Board The personal composition of the Management Board did not change in the period from 1st January to 31st December 2009. Listing on stock exchange The Dominating Entity, “Rainbow Tours” S.A. is listed at Warsaw Stock Exchange under short name Rainbow Tours S.A. and a mark “RBW”. 2.2. The base and the form of preparing the financial statement The presented quarterly financial statement was prepared in accordance with IRS 34 “Interim financial reporting”, and requirements of Minister of Finance ordinance of 19th February 2009 on current and periodical information submitted by the issuers of securities and conditions of recognition information required by the law of non-member countries as equal. (Journal of Law No 33 item 259 with subsequent amendments). 2.3. Information on rules applied while preparing the quarterly report as on 31 December 2009 13 When preparing the quarterly report for the three quarters of 2009 the below mentioned accounting policy was used, which was created on the basis of the Accounting Act of 29th September 1994 (with subsequent amendments) and records of International Financial Reporting Standards and interpretation issued by International Accounting Standards Board, and also International Financial Reporting Interpretations Committee (IFRIC) in the shape approved and published by EU. General accounting rules Recognition of economic transaction: Economic transactions are recognized in accounting books at the moment of their appearance and recognized in the respective period. Historical cost principle The base of recognition in the accounting books and recognizing for the first time each asset and liability as historical cost. They are subsequently valued according to presented below rules of this policy, differently for different assets and liabilities (adjusted historical cost, fair value or achievable value) Superiority of economic content over the legal form Transactions are recognized in the accounting books and reported in financial statements according to their economic content, and not only legal form of the transaction. The Company up to date analyses economic content of agreements and transactions concluded and registers them in way that ensure true and reliable reflection of the entity’s economic situation. Materiality concept Financial ( or not financial information) is regarded as significant if not included or distorted ( in accounting books or notes to financial statement) could influence economic decisions taken on the base of financial statement by their users. Consolidation The objectives of financial statement consolidation The consolidation is aimed at presenting the assets, financial situation and financial results of entities within the Capital Group, in a way if it was one entity. Rainbow Tours S.A. Capital Group consist of dominating entity and its subsidiaries. The related undertakings, dominating entities, subsidiaries and associated entities Entities related with the Company are as follows: 1. Entities, which directly or indirectly through one or more agents, a) control or are controlled, or jointly controlled by an entity (these are dominating entities of Capital Groups, subsidiaries, or subsidiaries within the same Capital Group) b) Hold share in entity, which allows to significantly influence the entity, or c) Jointly control the entity 2. Entities affiliated with this entity ( within the meaning of IRS 28 “Investments in affiliates) 14 3. 4. 5 6 Joint-ventures, in which the entity have shares Members of the key management personnel of the entity or dominating entity Close relatives of the persons mentioned in point 1 and 4. Entities, over which persons mentioned in point 4 and 5 have control, joint control, significant influence, or directly or indirectly share in voting rights. The dominating entity is an economic entity which possesses one or more subsidiary. A subsidiary is the economic entity, which is controlled by the dominating entity. It is assumed that the subsidiary is controlled, if the dominating entity have directly or indirectly – through its subsidiaries – more than half of voting rights in the subsidiary. The company have control if the dominating entity have half or less of voting rights in subsidiary and if: 1) Have more than half of voting rights pursuant to agreements with other investors 2) Is able to manage financial and operating policy of subsidiary pursuant to Statutes or an agreement 3) Is able to appoint and dismiss members of the Management Board of the subsidiary, or 4) Has majority of votes at the meetings of the Management Board of the subsidiary. An affiliate is the entity, which is significantly influenced by an investor, and is not entity dependent on the investor, or a joint- venture with the investor. It is assumed that significant influence is exerted , if the investor has directly or indirectly, through its subsidiaries 20% or more votes in the entity, in which it invested. The significant influence of the Investor on the affiliate may take following forms: Being a member of the Management Board of the entity, participation in creating strategy of entity’s operations, including decisions concerning dividend payment, significant transactions between the investor and the entity, mutual exchange of the management personnel, providing access to significant technology information. Obligation to prepare consolidated financial statement and exclusions from consolidation. The subsidiaries of Rainbow Tours S.A., which are dominating entities towards their own subsidiaries do not prepare a consolidated financial statement if the following conditions are met: 1. Minority shareholders in dominating entities were informed about this fact and did not object, 2. Debt and equity securities issued by the dominating entities are not traded at the official market. In order to determine the list of entities included in the consolidated financial statement and the list of entities excluded from consolidation, quality criteria are applied, which are supplemented by quantity criteria. Relating connections between the entities within the Capital Group to these criteria is the base of stating whether given entity is insignificant with respect to correct presentation of the Capital Group as a whole , and if it can be excluded from consolidation. The entity cannot be deemed insignificant, if: 15 1. Provides goods and services, which are consistent with core- business activity of the dominating entity or other entities within the Capital Group, and the absence of this entity can negatively influence economic situation of the whole Group, 2. Is for the dominating entity the source of long-term funds or funds supporting its core business activities. 3. The entity runs a great risk related with possession of this entity or the assets which could bring most benefits from this activities 4. Carry out activities , from which entity the dominating gains benefits, on behalf of the dominating entity in conformity with its economic needs, Investment valuation in subsidiaries, associated entities and shares in joint-ventures In non-consolidated financial statement prepared by the companies of Rainbow Tours S.A. Capital Group investments in subsidiaries and interests in joint-ventures are valued as at the balance sheet date at the purchase price including impairment losses. In a consolidated financial statement Investments in subsidiaries are valued as at the balance sheet date using consolidation exemptions described in point 3.6 of the report. The consolidated financial statement of the Capital Group The consolidated financial statement is the financial statement of the Capital Group prepared in a way , as if it was a financial statement of single economic unit. The consolidated financial statement is prepared by dominating entities. The consolidated financial statement consists of following components: 1. 2. 3. 4. 5. Consolidated balance sheet, Consolidated profit and loss account, Consolidated cash flow account, statement of changes in equity, additional information. Transactions excluded, which are concluded between companies within the Capital Group. The consolidated financial statement should present operations between companies of Rainbow Tours S.A. Capital Group and external units. To achieve this objective the following should be done: 1. identify in each company accounts, on which operations of other companies within the holding are recorded, 2. make reconciliation of balances and turnovers between each of consolidated company 3. include operations concerning: a. value of share (stock) acquisition by the dominating entity in subsidiaries (exemption from the financial statement of the dominating entity), b. parts of subsidiaries’ equity corresponding with share of the dominating entity in properties of these entities ( exemption from the financial statements of subsidiaries) 16 c. intercompany receivables and liabilities and other similar settlements of entities consolidated d. revenues and costs of transactions concluded between entities consolidated e. profits and losses, which are results of economic transactions between entities consolidated; they are included in value of assets consolidated. Goodwill of subsidiaries in the consolidated financial statement. Goodwill of subsidiaries in consolidated financial statement is a surplus between value of share in subsidiary’s assets at the price of acquisition and its fair value determined as at the acquisition date. Goodwill of subsidiaries is presented in separate item of assets in the consolidated balance sheet. Goodwill of subsidiaries is not amortized, however decreased by possible impairment charges. At the end of every financial year an impairment test on the goodwill with respect to subsidiaries is carried out. Impairment test on the goodwill is carried out also at the other balance sheet dates as , if there are circumstances which would suggest the necessity to carry out the test. Negative difference, if any , between value of share in net assets of subsidiary at the acquisition price and its fair value determined as at the acquisition date and recognized in the financial result for the period when the share was acquired. Translation of foreign companies’ financial statements When the functional currencies of financial statements of companies within Rainbow Tours S.A. Capital Group differ from presentation currency, then financial statements are translated to presentation currency as follows: a) assets and liabilities are recognized at closing price ruling on the balance date. b) revenue and costs in profit and loss account are stated at the average of closing prices ruling as at the last days of months in the given financial period. c) All currency translation differences , which are a result of this situation are recognized as separate component of equity. Valuation of assets and liabilities of the Company. Intangible assets Recognition of purchased/manufactured intangible asset in the accounting books. Intangible assets are recognized in the accounting books if an inflow of future economic benefits is probable from them, and their cost can be reliably assessed. Purchased intangible assets are recognized in the accounting books in the moment of purchase or manufacture. The entity purchases only such intangible assets which, from which it expects to gain economic benefits. Lost ability to generate economic benefits in the periods after the purchase is reflected through impairment test on intangible asset. 17 Determining the period of intangible assets’ useful life The Management Board of the company determines whether intangible asset is indefinite or definite period of useful life. The indefinite period of useful life refers to intangible assets, for which, as at the date of their acceptance to use , the entity could not determine the period in which economic benefits will be gained. This situation may refer to successfully accomplished development works, production technologies, or brands purchased. Intangible assets of indefinite period of useful life are not amortized. As at every balance sheet date the entity: Reviews assets with respect to permanent diminution, Verify whether the assumption concerning indefinite period of usufruct is still justified General amortization periods for intangible assets. Period of intangible assets’ useful life used pursuant to the agreement is equal to duration of the agreement or shorter if the entity intends to use intangible assets described in the agreement for the period shorter than defined in the agreement. If the agreement can be renewed, the period of useful life include renewed periods only when there is possibility to renew the agreement and no additional costs are incurred. The entity amortizes intangible assets on the straight line basis. The amortization starts in the month after the month, when the asset was available to use . The entity stops the amortization in the month when the intangible asset is recognized as noncurrent assets available for sale according to IFRS or is withdrawn from usufruct (liquidated or sold). Amortization period of particular categories of intangible assets. Software 5 years Goodwill Goodwill is the surplus of the acquisition cost over the share in fair value of Company’s possible to identify assets, liabilities, and contingency of acquired entity as at the date of acquisition. The entity recognized in the financial statement only the goodwill arisen in economic transaction of acquisition concluded by the entity. The goodwill is not amortized. An impairment test on goodwill is taken annually. Goodwill is recognized in the balance sheet at cost less impairment losses. Impairment loss, if any is recognized in the profit and loss account and is not reversed in the subsequent periods. Impairment tests on intangible assets Impairment tests are carried out on intangible assets when there are circumstances described in point 3.15, or annually in case of intangible assets of indefinite period of usufruct. 18 Tangible fixed assets Recognition of purchased/ manufactured assets in the accounting books. The entity recognizes fixed assets in the accounting books if there is probable inflow of economic benefits, and when their cost may be reliably assessed. Purchased or manufactured within one’s capacity fixed assets are recognized as at the moment of purchase or manufacturing. The entity purchases only those fixed assets, from which she expect to gain economic benefits. Lost ability to generate economic benefits in the period after the purchase is reflected by analyzing impairment of fixed assets. Subsequent inputs are included in the balance sheet value of a given fixed asset or recognized as separate fixed asset only when it is probable that this item will result in inflow of economic benefits for the Company, and the cost of this item may be reliably assessed. All other expenditures for repair and maintenance are recognized in the profit and loss account in the financial period when the expenditures were incurred. When part of the fixed asset is replaced, the replacement cost of the part of the fixed asset is recognized in the balance value of the given assets, and at the same time balance sheet value of the replaced assets is removed from the balance sheet, irrespective of the fact that it was separately amortized or not. Net value of the removed assets is recognized in the profit and loss account. Fixed assets in the entity are depreciated in the determined for them period. The amount to be depreciated is the difference between acquisition cost of fixed asset and its residual value ( the amount, which the entity expects to receive from sales after its period of useful life). This amount and the period of useful life is determined by the Management Board, or unit responsible for a purchase of fixed assets, in the moment of obtaining the invoice for purchase of the fixed asset before it is recorded in the accounting books. If the residual value determined in such way is insignificant in relation to the value of fixed asset (constitute no more than 10% of acquisition cost), it is assumed that it amounts to zero. For assets of useful life longer than a year, for which acquisition unit cost is insignificant in relation to all fixed assets of the given group, the entity makes single capital allowance of such fixed asset, in the month when it was recorded in the books. Limit of value to recognize fixed asset as subject of single capital allowance is the amount of PLN 3.500. In the moment of purchase of fixed assets, the unit responsible for these purchases determines whether fixed assets purchased comprise elements of varied period of useful life and whether the value of these element is significant in relation to the value of the whole fixed asset. When such elements are identified, they are separately recorded in register of fixed assets and depreciated within their individual period of usufruct. Acquisition cost of these assets is determined by the unit responsible for purchases as cost percentage of the whole fixed asset. Selecting valuation method of fixed assets owned. The entity applies a cost model to assess net book value of fixed assets. The cost model is the initial recognition of fixed asset at the acquisition cost and its subsequent depreciation to residual value over the period of useful life. 19 Overall depreciation periods for particular categories of fixed assets. Periods of depreciation of particular categories of fixed assets are as follows: Acquired perpetual usufruct of land 20 years Buildings 40 years Appliances – computer hardware 3-4 years Means of transport 3-5 years Other fixed assets 5-8 years Value of depreciated fixed asset is apportioned systematically throughout the period of useful life. The period of their usufruct and the residual value is verified at least once a year. Depreciation starts in the month after the month when the fixed asset is available for use. Depreciation ends when the fixed asset is withdrawn from useful life ( liquidation or sale). Fixed assets for sale. Terms of classification The entity classifies the fixed assets as fixed assets for sale, if economic benefits from these assets will be gained by sale of these assets, not their further useful life. Decision to change the classification taken by the Management Board is binding. The assets are classed as fixed assets for sale if their immediately available for sale. The period from the classification as fixed asset for sale till sale should not exceed one year. Valuation method Fixed assets for sale are recognized in lower value of: a) Book value b) Fair value less sales costs Fixed assets for sale are not depreciated. The way of determining fair value less indispensible sales costs. Fair value of assets for sale is determined on the base of comparing prices of similar or the same asset transactions. Such information are gathered by unit managers which are responsible for the given asset. This is accomplished in the following way: a) Based on the expertise concerning price behaviour of similar assets; b) Based on information received from agents, which services the entity intends to use; c) Based on purchase offers received. Determined in this way fair value is lessen by indispensible sales cost, which are in particular: 20 a) Estimated commission payable to agents related to sales, b) estimated cost of repairs, which must be done before sales, c) estimated tax and other fees connected with sales transaction, which the entity is obliged to pay pursuant to legal provisions or a sales agreement, d) All the fees not paid yet connected with dismantling and transportation of assets to a purchaser. Financial instruments Financial instruments - financial assets for sale Classification rules Assets for sale are nonderivative financial assets which are not included in financial assets recognized in fair value through profit and loss account, loans, account receivables and assets maintained till maturity date. Assets for sale are shares and interests in companies, which are not subsidiaries, associated companies, not traded at the active market, and they are current or noncurrent assets. Recognition and derecognition in the balance sheet. The assets are recorded in the books as at the transaction completion date, and derecognized in the balance sheet when contractual rights to cash flow with respect to financial assets expire, or the asset is transferred together with the whole profit and benefits related with possession of this asset. Valuation rules. As the date of recording in books, they are valued at the fair value plus transaction cost, whereas as at the balance sheet the assets are valued at the fair value including impairment charges recognized in revaluation capital. In case of debt instruments, difference between an instrument value determined by using effective interest rate and fair value is recognized in the revaluation capital. Profits and losses from changes in fair value of the assets are recognized directly in equity. Assets for sale, for which there is no active market, and which fair value is impossible to assess; are valued at the purchase price less impairment charges, and results of valuation are recognized in the financial result. Rules of determining fair value of financial instruments. Fair value of assets or liabilities is best reflected in generally available market price at the active public stock exchange. Active market means that transactions are completed enough regularly , that the price determined at the market does not have to adjusted due to changing economic conditions, and in such amounts which guarantee the following: a) That the price determined is not result of off-market agreement of parties completing the transaction, 21 b) That it is possible to sale financial instruments owned by the entity without significant influence on the market price. When the market fails to meet criteria of the active market, the entity while evaluating financial instruments will reflect changes in the economic environment ( with regard to credit rating of the instrument issuer, changes in market return, changes of basis risk and others) and in this way adjust the price, which was previously determined on the market. If the instrument is not listed at the stock exchange the entity: a. The instruments with the right to share ownership will be valued at the acquisition cost adjusted by impairment loss, if there are circumstances for the loss b. Will take into account prices of owned financial instrument transactions off the regular market ( if such information will be available) and adjust by available information on changes in economic environment influencing the instrument price; If off regular market price will not be available the entity will use generally recognized valuation methods of given financial instrument, the methods which would be used by market participants to determine the price of the given instrument in market transaction. A debt instrument value, in particular, is assessed using effective interest rate calculated on the base of all cash flows from the given financial instrument. Any value assessed in this way is tested for impairment, if there are circumstances for impairment. assessment of value of instrument available for sale by effective interest rate. Value of Instrument available for sale value determined by effective interest rate is assessed in the same way as are loans granted by the entity. If the original maturity date of the debt instruments does not exceed twelve months, then the approximate of effective interest rate is a linear settlement of discount and interests, unless the difference is insignificant for the financial statement with respect to owned instrument value. Account receivables Recognition and valuation of trade receivables Trade receivables are recognized at the date, when services, materials, and goods are sold according to policy of sales revenue recognition. Trade receivables are recognized in a nominal value. The entity up-to-date monitors receivables recoverability. In case, when receivables recoverability is improbable a valuation allowance is created, which verifies the value of recoverability in relation to recoverable value. Cash Criteria of recognition assets as cash. Cash on hand and demand deposits are recognize as cash by the entity. Other monetary assets (cash equivalents) are current investments of high liquidity. They are considered cash equivalents if they 22 are easily convertible for determined in advance amounts of cash and are in a small degree exposed to risk of value change. The entity recognizes as cash, except cash on hand and cash, and cash at bank, in particular: Bills of exchange and checks received , Treasury bills and other money instruments of original repurchase date not exceeding 3 months if there is active market for them, Prepaid expenses In case of incurred expenditures concerning future reporting periods the Company makes cost prepayments. To costs accounted in time the Company include costs of organizing events, incurred commission payable from events and catalogues, which refer to sales in subsequent financial year, insurance and the subscription in the following year. valuation Value of this costs is valued at the value paid including prudence. Equity Authorized capital Recognition of the authorized capital in the financial statement. Authorized capital is recognized in the financial statement at the moment of its registration in the National Registry Court. Valuation of the authorized capital. Authorized capital is recognized in the nominal value of shares delivered in exchange for payments or contribution made. Surplus of payments over the share nominal value or surplus of fair value of contribution over the nominal value of shares delivered is recognized as spare capital. Amounts of unpaid capital with respect to shares delivered are recognized in minus as decrease in equity , in liabilities. Spare capital arisen on share issue surplus over their nominal value. Spare capital is created from surplus of share issue price ( or fair value of contributed assets) over their nominal value. Currency translation differences of entities operating abroad. This capital serves to recognize currency translation differences which are result of different currency rates applied to translate the balance sheet and profit and loss account of the companies within Rainbow Tours S.A. Capital Group, for which functional currencies differ from presentation currency. Liabilities Definition of a liability 23 A liability is a current obligation of the entity to pay in the future the expenses, which are a consequence of past events which will result in outflow of economic benefits from the entity in the future. Method of determining liability value in case of significantly deferred payment date In case of liabilities, which payment date is extended enough, that delivery contains funding element of the entity ( the entity assumes that liability payment date should exceed 12 months, so that delivery contain funding element) the entity recognizes liabilities in the nominal amount less discount input according to effective interest rate, which is as follows: a) Embedded in the agreement, if a price of delivery was determined at the level different than would be determined, if delivery was paid for immediately, b) Is result of interest rate assessment of loan, which would the entity be granted, if it would like to finance such purchase by loan, if the embedded in the agreement rate of return does not exist or does not meet market conditions. The difference between nominal amounts to be transferred to deliverers , and the value of acquisition cost is recognized is financial cost. Method of determining capital lease obligation Value of capital lease obligation as the moment of concluding the agreement is equal to discounted value of finance lease payments by discount rate embedded in the lease agreement. In the subsequent periods value of obligation is lessen by capital part of every payment determined by deduction from the whole payment the value of finance part resulting from multiplying obligation value as at the end of previous period by determined discount rate embedded in the lease agreement. Provisions Definition of provision Provisions are created when the Company has legal or customary obligation resulting from past events, an d it is probable that in order to fulfil the obligation an outflow of resources must follow, and the amount of the outflow can be reliably assessed. Provisions are created and classed according to their purpose of creation to following groups: 1. Provisions for liabilities, in particular, for agreements which incur liabilities, for guarantees and warranties granted and results of legal proceedings, 2. Restructuring provisions. Provisions for future operating losses are not created. The method of assessing provisions for the agreements entered into, which unavoidable costs of expenses arising on the agreement will exceed expected revenues. 24 Provisions for agreements concluded, in which unavoidable costs of executing the agreement will exceed expected economic benefits coming from the agreement, the entity recognizes loss which will be referred to the agreement in the period, when the cost surplus was stated. The entity creates provision for the above mentioned loss in the following amount: a) Entire loss coming from the agreement – if till balance sheet date revenue recognized exceeded costs incurred; b) Difference between the loss from agreement and the surplus of cost incurred over revenue achieved - if till balance sheet date costs incurred exceeded recognized revenue. Way of identification and determining the amount of other provisions Other provisions are recognized in the balance sheet if as at the balance sheet dates exists the obligation to make financial consideration in the future, which date or payable amount currently unknown. The entity assess provisions , in particular, for: Unfavourable results of litigation, in which the entity is a defendant ( if liabilities arising on this situation are not recognized in different items) if unfavourable result of a trial is probable for the entity. The amount of provision is assessed by the Management Board of the entity based on the opinion of the legal expert. Costs of provision, which were not invoiced, for services sold in the financial year, which will be charged to the entity by a tour operator at the beginning of the following year. Employment benefits Identification and valuation of short-term employee benefits As at the balance sheet date the entity assesses employee costs related to receiving additional economic benefits with regard to unused part of paid holidays by the employees. The additional cost is recognized as the accrued expenses in the value of paid holiday working days in the given year or in previous years including due mark-ups. Revaluation of costs settled in times takes place when the employee acquire the right to transfer unused holiday leave to the following year (31st December). Unsettled liabilities in this respect as at the balance sheet date are not discounted. Identification and valuation of other long-term employee benefits The entity does not have any regulations concerning jubilee payments or deferred earn-out payments, therefore the entity is not legally or customarily bound to provide long-term benefits in this respect. Payment obligation of severance pay provision is a result of binding legal regulations. The provisions are created in the amount assessed by the accounting department using individual method including significance criteria. 25 Identification and valuation of termination benefits The entity creates provision if she has a clear obligation to terminate a contract of employment with current employees without possibility to withdraw or provide termination benefit. The entity discounts the benefits, if maturity date is longer than a year starting from the balance sheet date. Deferred tax Definition of deferred tax assets and liabilities Deferred tax assets are determined in relation to deductible temporary differences or unused tax losses in the amount, in which it is probable that taxable income achieved will allow to use these assets. Deferred tax liabilities are recognized in relation to taxable temporary differences in the amount of income tax payable in the future. The method of assessing the tax value of assets and liabilities – main items affecting arising of deductible and taxable temporary differences. The book value of assets and liabilities is the value determined according to International Financial Reporting Standards. Tax value of assets and liabilities is the value which constitute base to calculate income tax liabilities Deductible temporary differences appear, when: Book value < tax base Book value> tax base For assets For liabilities Taxable temporary differences appear, when: Book value> tax base Book value < tax base For assets For liabilities Main items , which influence the appearing of deductible temporary differences are among others as follows: Using lower amortization rate for tax purposes than for accounting purposes, Calculated but not paid loan interests under agreement concluded, Calculated, unrealized foreign exchange losses Losses resulting from discounting of receivables Asset valuation allowances, which will decrease tax base in the future Created provisions for liabilities expected and accruals , for which is certain that when they are used tax cost will appear. Tax losses and advantages to be used in subsequent reporting periods. 26 Main items affecting the appearance of taxable temporary differences are among others as follows: Using higher amortization rate for tax purposes than for accounting purposes Applying towards interest not received on granted loans and other financial assets Calculated, but unrealized taxable temporary differences Asset revaluation in order to reach fair value exceeding acquisition value of these assets If the difference between book value and tax value will decrease in the future a tax liability ( a permanent difference), it is assumed that tax value of such balance sheet item is equal to its book value. Tax rate adopted and recognition of deferred income tax results. The entity calculates the value of deferred tax assets and liabilities including income tax rate in the year when the tax obligation appeared, as sum product of ( respectively taxable and deductible ) temporary differences and income tax rate valid in the year when tax obligation arose. Deferred tax from revenues and costs, which were directly recognized in equity is also recognized in equity. Contingent assets and liabilities Contingent liabilities are as follows: A probable liability, which is a result of past events, and which presence will be confirmed by occurrence or absence of one or more uncertain future events, which are not controlled by the Company, or Present liability, which is a result of past event, but is not recognizable, as: Inflow of benefits in order to settle liability is highly improbable It is impossible to reliably assess the amount of this liability. Contingent assets are probable assets, which are the results of past events, which existence will be confirmed by occurrence or absence of one or more future event, which are not controlled by the Company. Assets and liabilities denominated in foreign currency. The functional and presentation currency. The functional and presentation currency is Polish zloty. The rule of determining proper exchange rate for particular group of assets and liabilities as at the balance sheet. 27 Balance sheet components classed as monetary as at the balance sheet date will be valued at the closing price on the balance sheet date. This in particular refer to the following groups of assets : receivables, liabilities, loans granted received loans and credits, and cash. Balance sheet components classed as nonmonetary valued at fair value will be translated to Polish zloty at the average rate ruling on the date of determining the fair value. If the Company will be determining fair value as at the balance sheet date, then it will be applying the exchange rate valid for the given currency on the balance sheet date, to translate nonmonetary balance sheet components valued at fair value. If the fair value of the given balance sheet component will not be determined as at the balance sheet date, its value translated into Polish zloty will be determined using the exchange rate ruling on the day, when the fair value of balance sheet component is determined for the last time, if the difference will be significant to the financial statement. This situation refers particular to components of fixed assets for d sale. Other balance sheet components ( nonmonetary components valued at historical cost or modified historical cost) will be valued as at the balance sheet date at the exchange rate ruling on the transaction date of acquisition given component. In order to make matters simpler, for practical purposes the entity uses as closing rate an average exchange rate published by NBP. The rule of determining proper exchange rate for particular groups of assets and liabilities during a year and stating currency translation difference results. Transactions and balances denominated in foreign currencies are translated into functional currency at the exchange rate ruling for transaction settlement. Profit on exchange and foreign exchange loss referring to settlement of these transactions and valuation of monetary assets and liabilities denominated in foreign currencies are recognized respectively in profit and loss account, on following conditions: o o They are not deferred in equity, when they qualify to be recognized as cash flow hedge and hedging the share in assets, and Does not refer to construction in progress built, within the funding period – up to amount of interest cost adjustment. Foreign exchange gains and losses concerning transactions related with obtaining external funding (credits, loans, lease agreements, cash and cash equivalents) constitute financial costs. Currency translation differences arising on nonmonetary items, such as equity instruments classes as financial instruments available for sale are recognized as revaluation capital at fair value. Currency translation differences concerning funding of manufactured fixed assets – up to interest cost adjustment, less revenues in this respect are subject to capitalization in fixed asset value. Currency translation differences with regard to other transactions ( completion and balance sheet valuation of trade settlement ) increase or decrease revenue or cost items of related operations. Lease 28 Lease classification The entity classes leasing as at the lease beginning date, that is at the w date of concluding lease agreement. Leasing is classed as finance lease, when conditions in the agreement transfer, in principle, all potential benefits and risks connected with ownership to lessee. All other types of leasing are treated as operating lease. The entity treats a lease agreement as a finance lease agreement, when: a) Lease agreement transfer ownership of lease object to the entity within lease period. b) Lease agreement includes purchase option of lease object at the price enough favourable in relation to value of lease object, that using this option is highly probable, c) Lease period is similar to period of economic useful life of lease object d) current value of lease payments is similar or higher than value of object lease at the moment of entering into agreement e) lease object is highly specialized and only lessee can take advantage of it, f) in case of breaking the agreement by the lessee , the lessee covers all losses of lesser, which are related with agreement breaking g) all fluctuations of lease object residual value are reflected through modification of lease amounts; h) lessee can continue lease after original period under the agreement, and lease amounts in this additional period are significantly lower than market leases. Valuation of lease subject initial value Assets used under the lease agreement , which are treated as Company’s assets are valued at the fair value at the moment of concluding the agreement, however, the value cannot be higher than the current value of minimal lease payments. Depreciations of lease objects When the agreement is classed as finance lease agreement, the entity recognizes the lease object as its asset and depreciates it within lease period, or proper for the given group of assets period of useful life, however , only then when it is certain that the lessee will obtain ownership and will use asset in the period longer than the period under the agreement . Settlement of lease payments Lease payments are distributed among financial costs and decrease in lease liability balance, in such way that the effective interest rate of the rest of liability balance was a constant amount. Financial costs are recognized directly in the profit and loss account. Rules of determining the financial result In Rainbow Tours S.A. net financial profit comprise as follows: 29 o o Profit (loss) from operating activities Gross profit (loss) on sales – profit from core-business activities Profit (loss) from other operating activities Financial transactions and investment Obligatory income tax charges to financial result; the income tax paid by the Company, and payments equal to it , according to separate legal regulations, Profit on abandoned activity Sales revenues The revenue is recognized, when inflow of future economic benefits to the entity is probable. Sales revenues are recognized at the fair value of payment received or due, less goods and services tax , rebates, and discounts. The moment of sale is the moment of receiving of services or goods by the recipient. The Company recognizes as revenues from goods sales above all fee earned on: Tourist services Agency In case of organizing tourist events fee earned is recognized as the date of the tourist event ending. The entity makes simplification with regard to short durations of touristic events, and assumes that the date of origination of sales revenue is the date of completing the service . also for those tourist events, which began at the end of one financial year, and end at the beginning of another financial year. Service prepayments received are recognized in balance sheet liabilities as received prepayments for services, which will be provided in future periods. Origination date of revenues from agency of tourist events, airline and coach tickets, and insurance sales, is the date of entering into agreement by the recipient of service. Received payments are the base to assess due revenues. Final amounts of actual commissions on sales above mentioned is determined at the moment of settlement of sold services with a carrier or tour operator. Costs of goods and products sold Costs of goods and services sold are recognized in the income statement according to matching principle of revenues and cost ( revenues and costs referring to the same transactions are recognized parallel). Profit on other operating activities Revenues and profits directly related to operating activities include as follows: Profits and losses on disposal of fixed assets , construction in progress, and intangible assets, Write-down of outdated, amortized, and uncollectible receivables and liabilities Creating and reversing provision other than those related to the financial activity Creating and reversing asset valuation allowance and their adjustments, which are result of changes in estimated values, except write-downs charged to costs of services and goods sold or financial costs. Compensation, penalties and fines. 30 Transferring or obtaining free of charge, including as donation of assets. Finance revenues and financial costs Company’ s finance revenues and financial costs include: Interests on assets owned Interests on loans and credits granted Currency translation differences on loans and credits Interests arising from purchase or sale on prolonged payment conditions, Loss on derivatives, which are recognized in profit and loss account Interest on finance lease payments – recognized using internal rate of return method Profit (loss) on sales of investment All interests and other financial costs are recognized in the period, to which they refer. Dividend revenue are recognized as the rights to receiving payments are obtained. Income tax Current income tax which charged to financial result of the reporting period is determined in the amount of tax due arising from tax declaration for a current reporting period. Deferred income tax charged to financial result of the reporting period is classified as changes in assets and provision for deferred tax , which are a consequence of events recognized in financial result of this period. 2.4. Information on rules changes (Accounting Policies), and on essential changes in estimated data, including adjustments of provisions, and deferred tax provision and assets, impairment losses for assets In the presented period neither rules of Accounting policies did change nor the estimated data including adjustments of provisions, deferred tax provision and assets, impairment losses for assets. In relation to the previously published semi-annual data the Issuer recognized an impairment loss in the amount of PLN 1.6 million for the shares in subsidiaries , in the financial statement. The amount of impairment is subject to elimination in the presented consolidated balance sheet since the results of particular companies are charged to consolidated results of the Capital Group. At the end of the financial year this write-off was removed from the non-consolidated financial statement owing to sale of subsidiary OOO Rainbow Tours Ukraina. 2.5. Brief description of achievements and failures in the report period including the most significant events with regards to these achievements and failures 31 Year 2009 was the most difficult period in the entire history of the Company. It could be compared to the year 2001, when terrorist attacks took place in September 2001. Following this event tourists movement substantially slowed down. Similarly, in 2009 as a consequence of the events that started in 2008, when American financial institutions declared bankruptcy there was a definite decline in appropriating free resources for consumption. It should be noted that the company offers services in higher segment than satisfying first needs. The factor which affected consumptions spending was the mass-media campaign revolving around financial crisis, which influenced costumers’ attitude towards lesser consumption spending and appropriating free resources for savings. Limiting customers’ consumption resulted in substantial slow-down in purchase of tourism services in the first few months of 2009. These decisions were also influenced by situation on currency markets. The services offered by the company are provided mainly abroad and that is the reason why costs of the trips are borne mainly in foreign currencies. Costs paid in Polish zloty were affected by a price of the avgas and rising currency rates purchased by the carriers. The below chart shows changes in average exchange rates published by NBP for USD and EUR in the period from 31 January till 31 December 2009 at the end of each presented month. Table - The average exchange rates published by NBP in 2008 and 2009. Average exchange rates published by Polish Central Bank in years 2008 & 2009 5 4.7013 4.1082 4 3.6758 PLN 3.2026 2.8503 3 2.0509 2 USD EUR There was exceptional increase in currency rates. The price of EUR increased from 3.2026 at the end of July 2008 up to 4.6578 at the end of February 2009 what is a total increase by 46.8%. The same situation was in place with USD which price at the end of July 2008 amounted to 2.0509, whereas in February 2009 one dollar cost PLN 3.6758 which constitute the increase of 79.2%. The Management Board informs that in February 2009 currency rates reached their peaks and on 18 February 2009 the average NBP rate four EUR amounted to PLN 4.8999 whereas USD cost PLN 3.8978. The prices of both currencies increased within 7 to 8 months. Negative exchange differences are presented in profit and loss account in 2009 amounted to PLN 2.8 million. Such great currency rates fluctuations are impredictible in all branches. The attempt to transfer increased costs of trips to customers was impossible owing to the fact that few of present customers 32 of the company would accept increase in prices of trips up to 50%-80%. The Management Board of the issuer renegotiated contracts regarding trips and introduce scheme of economizing own costs. It should also be mentioned the catalogues of offers including price lists are prepared in few moths advance and the offers are binding for the customers. A typical trend for the tourism markets is making reservations for summer trips already in the first quater of a year. The customers making reservation pay an advance, which is a prerequisite for the reservation. In 2009 the reservation process slowed down substantially which affected liquidity of the company. Economic stabilization in the world and good economic results restored the climate of cunsumption purchase. Customers having no previous reservation started choosing the company’s offer in masses. An exceptionally rainy summer was another decisive factor for buying trips abroad. In the period analysed profit on sales amounted to almost PLN 35.1 million and was higher by 8.2 % of the profit for 2008. Inspite of similar amount of tourists taking advantage of the touristic trips in 2009 in comparison with 2008, the gross margin (trade margin)amounted ot 13.0% whereas in 2008 it was 12.0%. Despite noticeable fall of currency rates on the currency market in each of the quarters starting from the second quarter of 2009 one should explain why there were prepayments for reservation of touristic destinations. The prepayments were made at the beginnig of the summer season but they become costs at the moment of the realization of touristic trips. The issuer took actions to secure currency rates (above all EUR) at the lowest level possible. To achieve this it completes forward and corridor transactions. Moreover, the company renegotiated purchase agreements with contractors (air transportation, accomodation) in order to level down the cost of services. The below described situation increases cost of selling by 6.7% in 2009 compared to 2008. The Issuer’s Capital Group brought in place some resolute restructuring activities regarding activities referring to self-costs incurred by the Capital Group. It should be stressed that the Issuer’s selling costs decreased by PLN 2.4 million compared to 2008 which was a fall by 10.6%. Also, the costs of company’s management were reduced. In comparison with 2008 the general cost was reduced by almost PLN 4.1 million which is a fall by 21.8 % compared with the similar period. All actions underatken by the Issuer’s Management Board resulted in in achieving operating profit (EBIT) at the level of PLN 0.9 million. This result is higher than in the similar period by around PLN 10.3 million in comparison with 2008 when the company suffered the operating loss in the amount of PLN 9.4 million. Rainbow Tours S.A.’s net profit achieved in 2009 amounted to PLN 1.1 million and was higher by almost PLN 9.6 million in comparison with 2008 when the company suffered the net loss in the amount of PLN -8.5 million. EBITDA in 2009 amounted to PLN 1.3 million, whereas in 2008 this indicator was negative and amounted to PLN -8.8 million. Rainbow’s net yield (ROS) was throughtout 2009 at the level of 0.4%. This indicatow was negative in 2008 and amounted to -3.2%. 33 2.6. Type and amounts of items affecting the assets, liabilities, net financial result or cash flows, which are untypical with regard to their type, amount or influence exerted In the fourth quarter of 2009 there were no untypical events, which , in the opinion of the Issuer and the Capital Group, affected assets, liabilities, equity, financial results and cash flows. 2.7. Explanations concerning seasonality or periodicity of issuer’s activities in the period presented. Activities of the Group are seasonal. The below chart presents value of revenue from sales of touristic services since January 2006 till December 2009. The presented data refer exclusively to the dominating entity. The Issuer desisted from comparing the consolidated data taking into account various dates taking control over subsidiaries and close cooperation of all entities, and subsequent exclusions of mutual transactions. Table - monthly sales revenues in years 2006-2009 Monthly revenues from sales per years 60,000 50,000 40,000 30,000 20,000 10,000 0 Monthly revenues from sales per years Table - comparing quarterly sales revenues in years 2006-2009 34 Comparison of quarterly revenues - since 2006 till 2009 150,000.0 100,000.0 50,000.0 0.0 I Kw II Kw 2006 III Kw 2007 2008 IV Kw 2009 2.8. Presentation of the results according to particular activity segments of Rainbow Tours S.A. Capital Group the below table presents activities of the Capital Group divided into particular activity segments Segments of activities description Continuing activity, sales revenues Continuing activity, cost of sales Gross profit (loss) on sales Continuing activity, cost of selling Continuing activity , general and administrative cost Continuing activity, other operating income Continuing activity, operating cost Profit (loss) on operations Activities of tour operator Activities of as travel agents Other activities Total 247 488 37 596 3323 288 407 -221 272 -29 411 -2613 -253 296 26 216 8 185 710 35 111 -14 644 -5 680 -237 -20 561 -12 128 -2 418 -170 -14 716 1 310 1 310 -301 -301 247 488 37 596 3323 288 407 2.9. Information on issue, repurchase and repayment of non-equity and equity securities In 2008 Rainbow Tours S.A. started introducing Share Incentive Plans based on Company’s shares. The rules of the new Share Incentive Plan was resolved at Ordinary General Assembly of 6th June 2008. The Plan comprises years 2008-2010. 35 The main goal of the plan is a stronger motivation of greater team of employers, in order to increase Company’s goodwill for shareholders and introduce a factor enabling to retain key persons in the Capital Group for a long time. On 8 September 2008 a conditional increase of share capital by the amount not higher than PLN 20 thousand by issue of ordinary bearer serried D shares of nominal value PLN 0.10 each was registered in National Registry Court. Series D share will be subscribed by authorised persons from Issue A subscription warrants. On 30 October 2008 52 thousand registered series A subscription warrants were distributed (“series 2008”). On 15 December 2008 the Management Board of Polish National Depository for Securities by resolution 684/08 took to deposit up to 200.000 series D shares of nominal value PLN 0.10 each issued within conditional share capital increase of Rainbow Tours S.A., on condition that the company which run regular market will take a decision to trade the shares on this market. On 31 December WSE Management Board adopted resolution No 992/2008 concerning admission and introduction to trading at the WSE Main Market ordinary series D bearer shares of Rainbow Tours ( 52 thousand of ordinary series D bearer shares of nominal value 0.10 each). According to the above mentioned resolution it was decided to admit, as of 7 January 2009, in usual way, shares to trading on regular market; on condition that the shares are registered by Polish National Depository for Securities on 7 January 2009 and marked with code: “PLNRNBWT00031”. On 6 January 2009 the Operating Department of Polish Depository for Securities published an information concerning the registration, and therefore the shares were admitted to trading. 2.10. Dividends paid (total or per share), divided into ordinary shares and other shares. The dominating company did not declare or paid out the dividend during the four quarter of 2009. 2.11. Significant events after the interim period, which were not reflected in the financial statement for the first quarter of 2009. Rainbow Tours S.A.’s Management Board advised that on 1 February 2010 ( the Current Report No 5/2010) that the Issuer purchased and acquired the part of the company comprising 8 retail outlets selling tourism offer from Forte Trip Spółka Cywilna with its seat in Koszalin. The company acquired these assets using its own resources. The acquired assets that is 8 travel agencies located in shopping centres will be included in ABC Świat Podróży Sp. z o.o. which is 100% owned Rainbow Tours’s subsidiary. ABC Świat Podróży will possess 16 retail outlets including 8 located in Wielkopolska, 3 in Koszalin, 2 in Płock and one in each of the following towns: Gryfice, Białystok and Szczecin. The Management Board of ABC Świat Podróży Sp. z o.o. estimates the company will generate gross revenues at the level of PLN 50 million. The company plans to open new travel agencies of ABC Świat Podróży, first of all in Lodz. Until the moment of the publication of the respective report there were no events identified which could, in the opinion of the Management Board, affect the company’s future financial results. 36 2.12. Changes in contingent liabilities or assets, which took place after the end of the last financial year On 5 January 2009 the deposit for the amount PLN 870 thousand was released, which was a bank guarantee for related undertaking Rainbow Tours – Biuro Podróży Sp. z o.o. The guarantee was submitted by accredited agent which is Rainbow Tours – Biuro Podróży Sp. z o.o. to International Air Transportation Association. The guarantee was valid till 31 December 2008. This item is not presented as at the end of the fourth quarter of 2009. 2.13. Description of organization of the Issuer’ s Capital Group, indication of consolidated entities The below diagram presents the structure of Rainbow Tours S.A. Capital Group and the percentage share in equity of particular companies. Rainbow Tours S.A Rainbow Tours Ukraina* capital share 100% Portal Turystyczny Sp. z o.o. Rainbow Tours - Biuro Podróży sp. z o.o. capital share 65% capital share 50% Travelovo Sp. z o.o. capital share 75,4% Traveltech Sp. z o.o. capital share 71% ABC Świat Podróży Sp. z o.o. capital share 100% As at 31 December 2009 all entities controlled by the issuer were consolidated. The Comparable data for the similar period of 2008 include in the profit and loss account, and changes in equity information on ABC Świat Podróży Sp. z o.o., starting from the moment of taking over the control – that is from June 2008. The Company OOO Rainbow Tours Ukraina was sold on 23 December 2009, about which the Issuer informed in the Current Report No 44/2009 as of 30 December 2009 and the Amended Current Report No 44/2009 as of 22 January 2010. Owing to sales of subsidiary OOO Rainbow Tours Ukraina ( the equivalent of Polish Sp. z o.o.) the Capital Group’s results include only revenues and costs of this company until the company was under control. 2.14. Result of changes in economic entity’s structure within the interim period including mergers of economic entities, acquisition or sales of subsidiaries, and long-term investments, restructuring and abandonment of activity. In the fourth quarter of 2009 the share in subsidiaries Travelovo Sp. z o.o. and Travelovo Sp. z o.o was increased. As a result of transactions share capital and share in votes at the general meeting of the shareholders was increased from 56% to 75.4 % whereas the share capital and the share in votes at the general meeting of the shareholders was increased from 56% to 71.0%. 37 The Company OOO Rainbow Tours Ukraina was sold on 23 December 2009, about which the Issuer informed in the Current Report No 44/2009 as of 30 December 2009 and the Amended Current Report No 44/2009 as of 22 January 2010. Owing to sales of subsidiary OOO Rainbow Tours Ukraina (the equivalent of Polish Sp. z o.o.) the Capital Group’s results include only revenues and costs of this company until the company was under control. 3. Other additional information 3.1. Selected financial data including basic items of abridged financial statement ( translated into Euro as well) To translate the below items following foreign exchange rates were used: - Average Euro exchange rate ruling as at the last day of the period, set by National bank of Poland ( as at 31 December 2009 – PLN 4.1082, as at 31 December 2008 – PLN 4.1724, as at 31 December 2008 – PLN 4.1724) – for asset and liabilities - arithmetic average of exchange rates set by National Bank of Poland ruling as at the last day of every finished month of the financial period ( as at 1 December 2009 – PLN 4.3406, as at 1 December 2008 – PLN 3.5321 ) – for profit and loss account and cash flow account items. Rainbow Tours S.A. Capital Group RTSA 100% PLN’000 Rainbow Tours S.A. selectdata C f 0 Legal Basis: IFRS Sheet: type 2 Description 31 December 2008 31 December 2009 4,1724 4,1082 Average exchange rate set by NBP Euro Weighted average exchange rate by NBP 3,5321 4,3406 Euro Continuing activity sales revenues 269 872 288 407 PLN 76 406 66 444 Euro Profit (loss) on operations -9 438 843 PLN -2 672 194 Euro Profit (loss) before tax -8 177 1 269 PLN -2 315 292 Euro For shareholders of dominating entity -8 591 942 PLN -2 432 217 Euro Net operating cash flow -12 959 -4 214 PLN -3 669 -971 Euro Net cash on investment activities 2 243 4 375 PLN 635 1 008 Euro 38 Net cash on financial activities PLN Euro Net Increase/ (decrease) in cash and cash equivalents PLN Euro Total assets PLN Euro Long-term liabilities PLN Euro Current liabilities PLN Euro Equity PLN Euro Authorized capital PLN Euro Number of ordinary shares ( with respect to dividend) Profit (loss) per ordinary share PLN Euro Book value per share PLN Euro Diluted profit ( loss) per ordinary share Net profit (loss) Element diluting the number of ordinary shares Number of ordinary shares ( with respect to dividend) Element diluting the number of ordinary shares PLN Euro Book value per share PLN Euro -192 1 288 -54 297 -10 908 1 449 -3 088 334 58 588 63 473 14 042 15 450 1 454 492 348 120 39 264 39 109 9 410 9 520 17 870 23 872 4 283 5 811 1 200 1 205 288 293 12 000 12 052 -0,72 0,08 -0,20 0,02 1,49 1,98 0,36 0,48 -8 591 942 -8 591 942 0 0 12 000 12 052 0 0 -0,72 0,08 -0,20 0,02 1,49 1,98 0,36 0,48 39 3.2. The Position of the Management Board concerning possibility of realizing previously published forecasts for the given year, in the light of results presented in the quarterly report in comparison to the anticipated results The Management Board of Rainbow Tours S.A. did not published the forecast of financial result referring to 2009 and the fourth quarter of 2009. 3.3. Shareholders holding at least 5% of the total number of votes at the Issuer’s General Assembly. Shareholder of Number of votes per each share Percentage of the number of share at the General Assembly of the Company Share percentag e in the share capital of the Company Sławomir Adam Wysmyk 2.331.000 4.221.000 22,12 19,28 Grzegorz Baszczyński 2.292.000 4.147.000 21,77 19,02 2.026.300 3.671.300 19,27 16,81 1.990.000 3.600.00 18,90 16,51 Remigiusz Cezary Talarek Tomasz Piotr Czapla Number shares held The above table presents the situation as at the date of submitting this quarterly report, that is at 1 March 2010. In the period starting after submitting previous quarterly report there was change in number of shares held by Mr Sławomir Wysmyk- the chairman of the Supervisory Board – a decrease in number of shares by 12.000 pieces which is the decrease in share capital of the Company by 0.10% and the decrease in the percentage share of votes at the General Assembly by 0.06%. 3.4. Company’s shares or right to shares (options) held by the members of the Management Board and Supervisory Board. Company’ shares as at the 31 December 2009 are held by following persons: Grzegorz Baszczyński – the President of the Management Board Remigiusz Talarek – the vice-chairman of the Management Board Tomasz Czapla - the vice-chairman of the Management Board Sławomir Wysmyk – the Chairman of the Supervisory Board. 40 A number of shares held and their share in Company’ s share capital, and the number of votes at the General Assembly are presented in point 3.3. Managing personnel, which do not seat in the Management Board or the Supervisory Board hold neither Issuer’s shares nor rights to these shares. Four out of five members of Company’s Supervisory Board comply with criteria of Independent Member according to the Statutes. Only the Chairman of the Supervisory Board: Mr Sławomir Wysmyk hold shares , which give him 19.28% share in the share capital of the Company and 22.12 % of votes at the General Assembly. The ownership of shares held by the managing persons including information on changes is presented in point 3.3. 3.5. Information on significant legal proceedings concerning the Company. The Issuer or its subsidiaries is not a party in any legal or administrative proceedings and the value of the subject matter of the litigation does not constitute 10% of Issuer’s equity. 3.6. Information on transactions concluded with associated units. The issuer and associated units failed to conclude transaction which would meet the criteria indicated in the Ordinance. All sales transaction were typical and of routine nature, and were a result of core business activity of the entities. In 2009 the dominating entity granted loans to associated units in the following amount: Travelovo Sp. z o.o. – PLN 300 thousand Traveltech Sp. z o.o. – PLN 140 thousand Sales transactions of goods and services between companies within Rainbow Tours S.A. Capital Group in the period from 1st January 2009 till 31st December 2009 are subject to elimination. Revenues 1-12/2009 Rainbow Tours S.A. Rainbow Tours Ukraina Sp. z o.o. Portal Turyst. Sp. z o.o Rainbow Biuro Podróży Sp. z o.o. Traveltech Sp. z o.o Travelovo Sp. z o.o. Biuro Podróży ABC 5 518,00 2 904,00 001 0,00 1 204,00 237,00 258,00 600,00 315,00 0 1 204 216 215 529 315 0 0 0 0 0 0 0 0 0 0 66 0 5 0 002 1 420 003 6 0 004 24 0 0 005 6 0 0 0 006 6 0 0 21 43 007 1 442 0 0 0 0 0 0 41 Costs 1-12/2009 Rainbow Tours S.A. Rainbow Tours Ukraina Sp. z o.o. Portal Turyst. Sp. z o.o Rainbow Biuro Podróży Sp. z o.o. Traveltech Sp. z o.o Travelovo Sp. z o.o. Biuro Podróży ABC 4 318,00 2 479,00 1 420,00 6,00 90,00 11,00 70,00 242,00 1 420 6 24 6 6 242 0 0 0 0 0 0 0 0 0 0 21 0 43 0 001 002 0 003 1 204 0 004 216 0 0 005 215 0 0 0 006 529 0 0 66 5 007 315 0 0 0 0 0 0 The difference in the amount of PLN 1200 thousand refers to intangible assets Receivables/ liabilities presented in the balance sheet of the particular companies within Rainbow Tours S.A. Capital Group as at 31 December 2009, which are subject to elimination Receivables 1-12/2009 Rainbow Tours S.A. Rainbow Tours Ukraina Sp. z o.o. Portal Turyst. Sp. z o.o Rainbow Biuro Podróży Sp. z o.o. Traveltech Sp. z o.o Travelovo Sp. z o.o. Biuro Podróży ABC Liabilities 1-12/2009 Rainbow Tours S.A. Rainbow Tours Ukraina Sp. z o.o. Portal Turyst. 4 421,00 1 865,00 001 0,00 219,00 2 291,00 46,00 0,00 0,00 0 219 869 42 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 0 002 36 003 0 0 004 0 0 0 005 0 0 0 0 006 0 0 0 1 422 4 007 1 829 0 0 0 0 0 1 130,00 0,00 0,00 0,00 0,00 1 425,00 1 829,00 0 0 0 0 0 1 829 0 0 0 0 0 0 0 0 0 4 384,00 001 002 0 003 219 0 0 42 Sp. z o.o Rainbow Biuro Podróży Sp. z o.o. Traveltech Sp. z o.o Travelovo Sp. z o.o. Biuro Podróży ABC 004 869 0 0 0 005 42 0 0 0 006 0 0 0 0 0 007 0 0 0 0 0 1 421 0 4 0 0 0 3.7. Information on credit or loans warranties, or guaranties granted by the issuer or its subsidiary to, jointly, one entity or its subsidiary, if total value of warranties and guarantees granted constitute at least 10% of Issuer’s equity In the presented period neither the issuer nor the subsidiaries granted loan warranties or guaranties, which would meet the above criteria. 3.8. Other information, which are in opinion of the Issuer, significant to asses situation of staff, assets and finance and its changes, and information essential to assess possibility of realization of liabilities by the Issuer. Rainbow Tours S.A. takes advantage of two operating credits in Deutsche Bank and Raiffeisen Bank . The credits support current liquidity in low tourist season (November – March, which s is also the period of payment of advances to contractors for services provided in high season. Currently after the end of the third quarter the issuer made some changes in cooperation with banks , which are financing the activities of the issuer. On 28 October 2008 the dominating entity contracted a current credit in BOŚ bank, in order to pay out the funding in Deutsche Bank S.A. Additionally on 10 November 2009 in order to secure liquidity the dominating entity obtained funding in BPS S.A. in form of current credit on current account. Currently the company has 3 credit limits in Raiffeisen Bank S.A. , BOŚ S.A. and BPS S.A. in the total amount of PLN 8.8 million. 3.9. Indication of factors, which in the opinion of the Issuer will influence results reached within at least following quarter Financial results reached in the future key periods will be influenced by the following factors: - Maintaining stable economic situation of the Company with reference to the economic situation in Poland Improvement of customer moods through consumption growth Sales of Winter 2009 offer Advance sale of Summer 2010 offer 43 - Renegotiating purchase agreements with contractors and increasing in this way profitability of most products, Cost restructuring started in the previous quarters in order to lower costs of functioning of the Capital Group. The Management Board of Rainbow Tours S.A. Lodz, 1 March 2009 44