Retained earnings comprise capital reserves created and used in accordance with the rules stipulated by the applicable laws and provisions of the Articles of Association, as well as current period’s profit.

As at December 31st 2012 and December 31st 2011,  Grupa LOTOS S.A.'s ability to distribute funds in the form of dividends was restricted. For more information see Note 12.

25.1 Restricted ability of subsidiaries of the LOTOS Group to transfer funds to the Parent in the form of dividends

In 2011 and 2012, the ability of subsidiaries of the LOTOS Group to transfer funds to Grupa LOTOS S.A. in the form of dividends was restricted due to the following arrangements:

• The agreement concluded on December 16th 2004 by LOTOS Paliwa Sp. z o.o. with Bank Pekao S.A. and PKO BP S.A. imposes restrictions on the amount of surplus cash generated by LOTOS Paliwa Sp. z o.o. in a financial year that may be allocated to dividend payment, setting specific ratios which must be met.
• At AB LOTOS Geonafta, there are restrictions on dividend payment under credit facility agreements of April 5th and September 27th 2012, which make such payment conditional upon the bank’s prior consent.
• At LOTOS Exploration and Production Norge AS, there are restrictions on dividend payment under a credit facility agreement of December 17th 2010.  The agreement imposes restrictions on dividend payment if such payment could - in the bank’s reasonable opinion - put at risk the company’s ability to repay the facility in a timely manner.
• The provisions of the credit facility agreement executed on December 14th 2010 by Nordea Bank Polska and Nordea Bank Finland with AB LOTOS Geonafta (formerly AB LOTOS Baltija) and LOTOS Petrobaltic S.A. as the guarantor imposed restrictions on the amount of surplus cash generated by LOTOS Petrobaltic S.A. in a financial year that may be allocated to dividend payment, making it contingent on meeting specific financial ratios computed based on the financial statements of LOTOS Petrobaltic S.A. On April 16th 2012, the credit facility was repaid.

As at December 31st 2012, restrictions on dividend payments were imposed on the following companies:
LOTOS Paliwa Sp. z o.o., AB LOTOS Geonafta and LOTOS Exploration and Production Norge AS.