<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 6-K
Report of Foreign Issuer
Pursuant to Rule 13a-16 or 15d-16
of the Securities Exchange Act of 1934
FOR THE THREE AND SIX MONTHS PERIODS ENDED JUNE 30, 2000
POLSKA TELEFONIA CYFROWA Sp. z o.o.
(Exact Name of Registrant as Specified in Its Charter)
AL. JEROZOLIMSKIE 181, 02-222 WARSAW
(Address of Principal Executive Offices)
POLAND
Indicate by check mark whether the registrant files or will file annual reports
under cover Form 20-F or Form 40-F.
Form 20-F ______X________ Form 40-F ______________
Indicate by check mark whether the registrant by furnishing the information
contained in the Form is also thereby furnishing the information to the
Commission pursuant to Rule 12g3-2(b) under the Securities Exchange Act of
1934.
Yes ____________________ No__________X____________
If "Yes" is marked, indicate below the file number assigned to the registrant
in connection with Rule 12g3-2(b): N/A
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Polska Telefonia Cyfrowa Sp. z o.o., is a limited liability company (spolka z
ograniczona odpowiedzialnoscia) organized under the laws of the Republic of
Poland. PTC is located in Warsaw, Poland and was registered in the Regional
Court in Warsaw, XVI Commercial Department on December 27, 1995. The principal
activities of PTC are providing cellular telephone communication services in
accordance with GSM 900 and 1800 licenses granted by the Minister of
Telecommunications and sale of cellular telephones and accessories compatible
with its cellular services.
In the following report for the convenience of the reader we understand:
10 3/4% NOTES as 10 3/4% Senior Subordinated Guaranteed Notes due July 1,
2007 which were issued by PTC International Finance B.V., our wholly owned
finance subsidiary organized under the laws of The Netherlands. Notes are
fully and unconditionally guaranteed by us (the "Company Guarantee"). PTC
International Finance B.V. has no independent operations and do not file
separate reports under the Securities Exchange Act of 1934 (the "Exchange
Act").
11 1/4% NOTES as 11 1/4% Senior Subordinated Guaranteed Discount Notes due
December 1, 2009, which were issued by PTC International Finance II S.A. our
wholly owned finance subsidiary organized under the laws of Luxembourg. Notes
are fully and unconditionally guaranteed by us (the "Company Guarantee"). PTC
International Finance II, S.A. and PTC International Finance (Holding) B.V.
essentially have no independent operations and do not file separate reports
under the Securities Exchange Act of 1934 (the "Exchange Act").
FORM 6-K as quarterly report on Form 6-K according to SEC rules and
requirements.
ZLOTY OR PLN refers to Polish currency,
U.S. DOLLARS, USD or $ refers to United States currency,
DEUTSCHMARK or DM refers to German currency
EUROS refers to the single currency of those member states of the European
Union that entered the third stage of economic and monetary union pursuant to
the Maastricht Treaty on January 1, 1999.
NBP as National Bank of Poland
FIXING RATE as exchange rate quoted for accounting purposes by the National
Bank of Poland The Federal Reserve Bank of New York does not certify for
customs purposes a noon buying rate for Zloty. For the convenience of the
reader, this Form 6-K contains translations of certain Zloty amounts into U.S.
dollars at the rate of PLN 4.3907= $1.00, the exchange rate quoted for
accounting purposes by the NBP, the Polish central bank, on June 30, 2000.
These translations should not be construed as representations that such zloty
amounts actually represent such U.S. dollar amounts or could be, or could have
been, converted into U.S. dollars at the rates indicated or at any other rate.
FINANCIAL STATEMENTS as financial statements for the three and six months
periods ended June 30, 2000 attached to this Form 6-K. They have been prepared
in accordance with International Accounting Standards ("IAS"), which differs in
certain respects from generally accepted accounting principles in the United
States ("U.S. GAAP") (see Note 26 to the Financial Statements). Unless
otherwise stated herein, all financial information presented in this Form 6-K
has been prepared in accordance with IAS.
Our registered office and its headquarters are located at Al. Jerozolimske 181,
02-222 Warsaw; telephone (+48 22 573-6000).
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
<S> <C>
SELECTED FINANCIAL DATA 4
-----------------------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
-------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS FOR THE THREE
-------------------------------------------------
MONTHS ENDED JUNE 30, 2000 6
-----------------------------------------------------------------------------------------------
RESULTS OF OPERATIONS 6
---------------------
OPERATIONAL OVERVIEW 6
--------------------
FINANCIAL OVERVIEW 7
------------------
NET SALES 8
---------
COST OF SALES 9
-------------
OPERATING EXPENSES 10
------------------
INTEREST AND OTHER FINANCIAL EXPENSES, NET 10
------------------------------------------
TAXATION 10
--------
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS 11
--------------------------------------------
LIQUIDITY AND CAPITAL RESOURCES 13
-------------------------------
SIGNIFICANT TRANSACTIONS AND AGREEMENTS 15
-----------------------------------------------------------------------------------------------
INTERCONNECT AGREEMENTS 15
-----------------------
LEGAL PROCEEDINGS 15
-----------------------------------------------------------------------------------------------
INTERCONNECT 15
------------
VOICE OVER INTERNET PROTOCOL 15
----------------------------
DATA SECURITY 15
-------------
BUSINESS ENVIRONMENT 16
-----------------------------------------------------------------------------------------------
THE COMPANY ON WIRELESS MARKET 16
------------------------------
SIGNATURES 18
-----------------------------------------------------------------------------------------------
</TABLE>
3
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SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
(Unaudited) (Unaudited)
THREE MONTHS ENDED THREE MONTHS ENDED
JUNE 30, 2000 JUNE 30, 1999
-------------------------------- -----------------------
PLN $(1) PLN
--------------- ------------- --------------
(in thousands) (in thousands)
STATEMENT OF OPERATIONS DATA
-----------------------------
<S> <C> <C> <C>
International Accounting Standards
Net Sales:
Service revenues and fees 830,829 189,225 551,177
Sales of telephones and accessories 39,405 8,975 63,213
--------------- ------------ --------------
Total net sales 870,234 198,200 614,390
Cost of sales:
Cost of services sold (341,070) (77,681) (212,732)
Cost of sales of telephones and accessories (207,001) (47,145) (219,620)
--------------- ------------ --------------
Total cost of sales (548,071) (124,826) (432,352)
--------------- ------------ --------------
Gross margin 322,163 73,374 182,038
Operating expenses:
Selling and distribution costs (145,592) (33,159) (109,117)
Administration and other operating costs (50,579) (11,520) (47,807)
--------------- ------------ --------------
Total operating expenses (196,171) (44,679) (156,924)
--------------- ------------ --------------
Operating profit 125,992 28,695 25,114
Interest and other financial expense, net (303,955) (69,227) (670)
--------------- ------------ --------------
(Loss)/ profit before taxation (177,963) (40,532) 24,444
--------------- ------------ --------------
Taxation benefit/(expense) 3,718 847 (29,543)
--------------- ------------ --------------
Net (loss)/income (174,245) (39,685) (5,099)
=============== ============ ==============
U.S. GAAP
Revenues 870,234 198,199 614,390
Cost of sales (545,778) (124,303) (430,909)
Operating expenses (196,171) (44,679) (156,924)
Interest and other financial expense, net (303,955) (69,227) 32,654
Taxation benefit/(expense) 3,718 847 (29,543)
--------------- ------------ --------------
Net profit/(loss) (171,952) (39,163) 29,668
OTHER FINANCIAL AND OPERATING DATA
----------------------------------
EBITDA (IAS) (1) 252,595 57,530 88,187
EBITDA (US GAAP)(2) 252,595 57,530 88,187
Subscribers at the end of the period 2,245,339 1,243,553
Monthly churn rate(3) 2.08% 2.39%
<CAPTION>
AT JUNE 30, 2000 AT DECEMBER 31, 1999
--------------------------------- -----------------------
BALANCE SHEET DATA
------------------
<S> <C> <C> <C>
International Accounting Standards
Long-term assets 4,290,347 977,144 4,011,762
Total assets 5,333,488 1,214,724 5,953,964
Long-term liabilities, provisions and deferred taxes 4,114,880 937,181 4,606,954
Total liabilities 5,308,383 1,209,007 5,786,158
Shareholders' equity 25,105 5,718 167,806
U.S. GAAP
Long-term assets 4,233,547 964,208 3,948,921
Total assets 5,356,083 1,219,870 5,365,636
Shareholders' equity (52,749) (12,014) 78,343
</TABLE>
_______________________________________
(1) Solely for the convenience of the reader, Zloty amounts have been
translated into U.S. dollars at the rate of PLN 4.3907 per $1.00, the
Fixing Rate announced by the National Bank of Poland on June 30, 2000.
The translated amounts should not be construed as
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representations that the Zloty has been, could have been, or could in the
future be converted into U.S. dollars at this or any other rate of
exchange.
(2) EBITDA represents operating profit/(loss) before depreciation and
amortization. EBITDA is included as supplemental disclosure because it is
generally accepted as providing useful information regarding a company's
ability to service and incur debt. EBITDA should not, however, be
considered in isolation as a substitute for net income, cash flow provided
from operating activities or other income or cash flow data or as a
measure of a company's profitability or liquidity.
(3) The churn rate is calculated as the average of the monthly churn rates in
the relevant period. The monthly churn rate is calculated as the total
number of voluntary and involuntary deactivations and suspensions during
the relevant month expressed as a percentage of the average number of
subscribers for the month (calculated as the average of the month end
total number of subscribers and the total number of subscribers at the end
of the previous month).
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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS FOR THE THREE
MONTHS ENDED JUNE 30, 2000
RESULTS OF OPERATIONS
OPERATIONAL OVERVIEW
Our company was formed in December 1995 and awarded a fifteen-year
non-exclusive GSM 900 license in February 1996 by the Polish Ministry of
Communications.Thereafter, we commenced construction of our GSM network, and in
September 1996, started offering services to subscribers under the brand name
Era GSM. Since that time, we have experienced rapid growth and development. In
August 1999 we were awarded the only nationwide fifteen-year, non-exclusive GSM
1800 license and from March 1, 2000 we have been offering our services in both
frequencies: 900 and 1800.
We provide our services on the territory of Poland for private and corporate
customers. We offer a wide range of telecommunication services beginning with
voice transmission, SMS, Short Message Information on request or as a frequent
service, voice mail and WAP (introduced to the market on June 16th, 2000). Our
services are segmented according to the audience segmentation what results in
six different tarrifs with different services available or included and with
different prices. Our strategy is not focused only on subscribers' acquisition
but also on subscribers' retention. To achieve the goals set up by our strategy
we launched the first loyalty program among telecommunication companies that
helped us to reduce the churn rate from 2.39 in second quarter of 1999 to 2.08
in second quarter of 2000.
Together with launching WAP services in our network we also decided to
popularize the Internet usage among wider group of people. We would like to be
seen as a provider of the global network. To meet our goals and to introduce
the Internet to the greater audience we signed several contracts with the
Internet cafes owners and open the chain of Eranet Cafes in the most promising
area of Poland including Katowice, Krakow and Szczecin. Eranet Cafes are
equipped by our Company and the staff of these cafes is dressed in
characteristic PTC's suits. Through these cafes we introduce mobile network
together with the Internet network and WAP services to the great number of
people.
We offer services for both postpaid and prepaid subscribers. Our prepaid
service, called Tak Tak was introduced to the market in 1998 and at the end of
June 2000 achieved more than 0.5 million prepaid subscribers out of 2.2 million
total subscribers, and accounts for 22.8% of total subscriber base. The number
of prepaid subscribers almost doubled from the end of the second quarter of
1999, when we recorded 0.3 million Tak Tak users or 22.6% of total number of
subscribers. Our postpaid subscribers base also grows very fast to 1.7 million
at the end of second quarter of 2000, comparing to almost 1 million as the end
of June 1999.
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The following table sets forth information about our subscribers and GSM
cellular network coverage as at the dates indicated:
<TABLE>
<CAPTION>
AS THE END OF AND FOR THE SECOND QUARTER ENDED JUNE 30,
2000 1999
-------------------------------------------------------
<S> <C> <C>
CUSTOMERS:
Net customer additions 239,791 305,850
Total Customers 2,245,339 1,243,553
OF WHICH:
Postpaid customers 1,733,742 962,592
Prepaid customers 511,597 280,961
GROWTH OF TOTAL CUSTOMERS FROM THE END OF THE SAME
QUARTER IN THE PRIOR YEAR (%) 81% 154%
AVERAGE MONTHLY CHURN (%) 2.08% 2.39%
TRAFFIC:
Average monthly revenue per customer (PLN) 131 166
Change from prior year (%) (22.3%) (30.3%)
COVERAGE OF GSM CELLULAR NETWORK IN POLAND:
Geographical area covered 89.04% 81.1%
Population Covered 97.45% 91.6%
</TABLE>
FINANCIAL OVERVIEW
The strong growth in net sales, from PLN 614.4 million in the second quarter of
1999 to PLN 870.2 million in the same period of 2000, and gross margin in
service revenues and fees, from PLN 338.4 million for the second quarter of
1999 to PLN 489.8 million in 2000, was largely offset by cost of sales for
promotional telephones and accessories, which decreased from PLN 219.6 million
at the end of the second quarter of 1999 to PLN 207.0 million in year 2000.
Operating profits increased to PLN 126.0 million in quarter ended June 30,
2000, compared with PLN 25.1 million for the same period in 1999.
We recorded a net loss of PLN 174.2 million in the second quarter of 2000, as
compared with a net loss of PLN 5.1 million during the same period in 1999. The
net loss for the three months ended June 30, 2000 is mainly driven by higher
interest expenses and by fluctuation of currency rates resulting in foreign
exchange losses. The net interest expenses resulted in PLN 125.5 million in the
second quarter of 2000 comparing to net interest expenses of PLN 51.3 million
for the same period of 1999. One of the major reasons for the increase of net
interest expenses in the second quarter of 2000, as compared to the second
quarter of 1999, was interest charges on 11 1/4% Notes what resulted in
interest expenses rise from PLN 51.5 million for the second quarter of 1999 to
the amount of PLN 135.8 million the second quarter of 2000. The net foreign
exchange losses for the three months ended June 30, 2000 amounted to PLN 178.4
million, comparing to net foreign exchange gains of PLN 50.7 million for the
same period of 1999. The foreign exchange losses increased from PLN 0.9 million
in the second quarter of 1999 to PLN 231.9 million in the second quarter of
2000. Increase in foreign exchange losses came from by
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<PAGE> 8
the devaluation of Polish Zloty, resulting in the change of basic currency
rates from PLN 3.9297 per 1$ in June 1999 to PLN 4.3907 in June 2000 and PLN
4.0593 per 1 EUR in June 1999 to PLN 4.2075 in June 2000, which has a strong
impact on the financial situation of our Company taking into consideration our
financing structure, that includes approximately foreign currency equivalent of
US $ 1 billion of liability.
The following table sets forth our gross margin by net sales category for the
periods indicated:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
JUNE 30,
--------------------------------------------
2000 1999
--------------------- -------------------
(in thousands of PLN)
<S> <C> <C>
Net service revenues and fees 830,829 551,177
Cost of services sold (341,070) (212,732)
--------------------- -------------------
Gross margin from service revenues and fees 489.759 338,445
--------------------- -------------------
Gross margin percentage of net service
and fees revenue 58.9% 61.4%
Sales of telephones and accessories 39.405 63,213
Cost of sales of telephones and accessories (207,001) (219,620)
--------------------- -------------------
Gross margin from sales of telephones and accessories (167.596) (156,407)
--------------------- -------------------
Gross margin percentage of net telephones
and accessories revenue (425.3%) (247.4%)
--------------------- -------------------
Gross margin 322,163 182,038
===================== ===================
Gross margin percentage of total net revenues 37.0% 29.6%
===================== ===================
</TABLE>
NET SALES
Our net sales were PLN 870.2 million in the three months ended June 30, 2000,
as compared with PLN 614.4 million during the same period in 1999. Net sales
consist primarily of service revenues and fees, comprised of air-time tariffs,
monthly service fees and service activation fees. Air-time tariffs include
revenues from incoming and outgoing calls and revenue from the use of pre-paid
air-time minutes sold.
Our service revenues and fees were PLN 830.8 million during the second quarter
of 2000, as compared to PLN 551.2 million during the same period in 1999. The
growth in service revenues and fees primarily reflects an increase in the
number of our total subscribers to over 2.2 million as of June 30, 2000,
including 0.5 million of Tak Tak prepaid service subscribers, as compared with
1.2 million of total subscribers with 0.3 million Tak Tak users as of June 30,
1999. The increase in customer base, however was partially offset by a
decrease in the monthly average revenue per subscriber to PLN 131 for the three
months ended June 30, 2000, from PLN 166 per month for the same period in 1999.
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In order to harmonize tariff plans and better target various markets, during
the quarter we introduced new tariff plans and new services: (i) restored
tariff Halo, (ii) SMS for pre-paid users, (iii) info line for corporate
customers and (iv) direct debit service for post-paid customers. We also
introduced WAP services on June 16, 2000.
Sales of handsets and accessories were PLN 35.6 million during the second
quarter of 2000, as compared to PLN 63.2 million during the same period in
1999. Since beginning of operations, we have conducted many promotional
campaigns in which we offered reduced prices for handsets and activation fees
during specific periods. As a result of these promotional campaigns, a
significant number of new subscribers have been added, although revenues from
sales of handsets and accessories have been negatively affected by promotional
discounting of the cost of handsets and accessories to subscribers.
Net interconnect income of PLN 130.1 million is included in the gross margin
from service revenue and fees for the three months ended June 30, of 2000,
which is comprised of PLN 177.6 million in gross sales and PLN 47.5 million of
expense. For the same period in 1999, the net interconnect income was PLN 90.2
million, consisting of PLN 120.9 gross sales and PLN 30.7 million of expense.
We have interconnect agreements with TPSA (Telekomunikacja Polska S.A.),
Polkomtel, Netia Telekom, Telefonia Lokalna and El-Net. We still negotiate the
interconnect agreement with Centertel.
COST OF SALES
Our costs of sales were PLN 548.1 million in the second quarter of 2000, as
compared with PLN 432.4 million in the same period in 1999. Gross margin was
PLN 322.2 million in three months ended June 30, 2000, as compared with a gross
margin of PLN 182.0 million in the same period in 1999. As a percentage of net
sales, gross margin represented 37.0% and 29.6% in the second quarter of 2000
and 1999, respectively.
The increase in gross margin in the second quarter of 2000, primarily reflects
growth in our subscriber base and growth in minutes of use, resulting in
increased revenue from airtime charges and monthly service fees. This
increased revenue, however, was partially offset by the cost of sales of
handsets and accessories during the period, which continued to exceed the
amount that we charged our subscribers for those items as a result of our
continued use of promotions to attract subscribers. As a general matter,
Management does not intend to achieve positive overall margins on our sales of
equipment and intends to sell these items to ensure a sufficient supply of GSM
equipment in the market place.
The continuous growth of our GSM network has resulted in increased demand for
transmission capacity. Presently, lines leased from TPSA, the main Polish wire
line operator, provide a large portion of the transmission capacity. We have
entered into a contract with Ericsson Radio Systems AB to construct a new
"backbone" transmission network in order to minimize the use of the leased
lines. We believe that, when completed, the backbone network will reduce cost
of sales and our dependence on external suppliers. Currently we are running
first connections of the Synchronos Digital Herarchy ("SDH") backbone and
additional connections as well as the city rings are planned to be operational
by the end of this year.
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OPERATING EXPENSES
Our operating expenses were PLN 196.2 million during the second quarter of
2000, as compared with PLN 156.9 million in the same period in 1999. The
increase in operating expenses was driven mainly by the increase of selling and
distribution costs.
Selling and distribution costs were PLN 145.6 million in the three months ended
June 30, 2000, as compared with PLN 109.1 million in the same period in 1999.
The selling and distribution costs for the three months ended June 30, 2000
included proportional increases in advertising costs for promotions associated
with our continued marketing roll-out, sales force salaries and wages, and
charges to the doubtful debtors provision. The charge to doubtful debtors
provision, increased to PLN 38.5 million for the three months ended June 30,
2000 from PLN 34.1 million for the same period of 1999.
Administration and other operating costs were PLN 50.6 million for the three
months ended June 30, 2000, as compared with PLN 47.8 million for the same
period in 1999. The increase in operating cost for the three months ended June
30, 2000 as compared with the same period in 1999 was primarily due to
increased employee hiring and external services to support our growth.
INTEREST AND OTHER FINANCIAL EXPENSES, NET
Combined interest and other financial expenses net for the three months ended
June 30, 2000 were PLN 304.0 million, as compared to PLN 0.7 million for the
same period in 1999.
Net interest expenses were PLN 125.5 million for the three months ended June
30, 2000, as compared to PLN 51.3 million for the three months ended June 30,
1999. Interest on the Bank Credit Facility accrues continuously and is payable
each year as individual drawdowns mature. Interest on the 10 3/4% Notes is
payable starting January 1, 2003 for the accrued portion of the prior six
months balance, but for the 11 1/4% Notes the first interest million was paid
on June 1, 2000 and then will be paid each June 1st and December 1st to year
2009.
As a result of the depreciation of the Zloty in relation to other major
currencies, we incurred a net foreign exchange loss of PLN 178.4 million in the
second quarter of 2000, as compared to net foreign exchange gains of PLN 50.7
million during the same period in 1999. (See further discussion in the
Inflation and Currency Fluctuation section of this document.)
TAXATION
The loss before taxes was PLN 178.0 million for the three months ended June 30,
2000 compared to 0income before taxes of PLN 24.4 million for the three months
ended June 30, 1999. We incurred a net loss of PLN 174.2 million in the second
quarter of 2000 compared to a net loss of PLN 5.1 million for the same period
in 1999, after reflecting the accounting effect of taxation.
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According to the requirements of the Polish tax authorities, the cost of the
GSM 900 and 1800 Licenses is recorded on a cash basis, which is the most
significant component of deferred tax liability of PLN 124.8 million as at June
30, 2000, as compared to a deferred tax liability of PLN 102.5 million as at
December 31, 1999. We also recorded a deferred tax asset relating to the
realization of accrued expenses and certain tax loss carry forwards of PLN
100.0 million as at June 30, 2000 as compared to PLN 75.1 million as at
December 31, 1999 (See Note 11 to the Financial Statements).
According to the tax regulations, the Corporate Income Tax rates have been
reduced. On January 2000 the new tax rate was changed from 34% for the year
1999 to 30% for the year 2000.
INFLATION AND CURRENCY EXCHANGE FLUCTUATIONS
In connection with its transition from a state controlled to a free market
economy, Poland experienced high levels of inflation and significant
fluctuation in the exchange rate for the zloty. The Polish government has
adopted policies to slow the annual rate of consumer price inflation. For the
twelve months ended June 30, 2000, annualized consumer price inflation in
Poland was 10.2% per the Polish Office of Statistics. Since the launch of our
operations in 1996, the cumulative inflation in Poland has been 51.1%. The
second quarter of 2000 brought also other changes to adopt Polish economy to
free market economy. The main and most important of these was achieving the
full flotation of Polish currency
Our sales revenues are denominated in Polish Zlotys. A significant portion of
our expenses and liabilities, however, are denominated in other currencies.
These include our liability to the Polish government for the GSM 900 and GSM
1800 Licenses, which are linked to Euro and payable in Zlotys, liabilities to
our suppliers of handsets, which are generally denominated and/or linked to
Deutschmarks, French Francs, U.S. dollars. Additionally, the 10 3/4 Notes, 11
1/4 Notes, Bank Credit Facility and shareholder loans are denominated in U.S.
dollars, DM or Euros. As a result, operating income and cash flows are and will
remain significantly exposed to an appreciation in these non-Polish currencies
against the Polish zloty.
Future currency exchange fluctuations are expected to continue to have a
significant effect on the financial condition and results of operations. To
manage the currency risk we have entered into foreign currency forward
transactions. Our hedging policy allows for the use of forwards, swaps and
options for minimizing currency and interest rate risks.
Starting in late 1998 and continuing through the current year, we drew funds
from the Bank Credit Facility and exhausted the Zloty denominated tranche first
in order to minimize the negative effects of currency exchange fluctuations. To
minimize our foreign currency risk we have changed payment currency with our
main suppliers from foreign currency to Zloty and also while replacing the Bank
Credit Facility will increase the Zloty portion of the debt.
The table below summarizes our foreign currency denominated long-term
obligations, including the future value of cash payments for principal and
interest, with the exception of the Bank Credit Facility which only presents
future principal payments due to its structure of variable interest rates and
continued revolving of each drawdown.
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<PAGE> 12
EXPECTED MATURITY DATE
(in thousands of Zloty)
<TABLE>
<CAPTION>
2000 2001 2002 2003 2004 Thereafter Total Present
Value
6/30/00
---------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
GSM 900 License - 236,041 - - - - 236,041 226,165
---------------------------------------------------------------------------------------------------------------------
GSM 1800
License 70,330 70,330 70,330 - - - 210,990 191,022
---------------------------------------------------------------------------------------------------------------------
10 3/4 Notes - - - 119,512 119,512 1,470,274 1,709,298 901,680
---------------------------------------------------------------------------------------------------------------------
11 1/4 Notes 108,048 216,096 216,096 216,096 216,096 3,001,336 3,973,768 1,912,237
---------------------------------------------------------------------------------------------------------------------
Shareholder
Loans - - - - - 752,992 752,992 365,652
---------------------------------------------------------------------------------------------------------------------
Headquarters
Lease 16,217 32,435 32,435 32,435 32,435 325,367 471,324 239,518
---------------------------------------------------------------------------------------------------------------------
Weighted Average
Effective Interest
Rate 11.0460 11.0460 11.0460 11.0460 11.0460 11.0460 11.0460 11.0460
---------------------------------------------------------------------------------------------------------------------
</TABLE>
Tab. 1 Our foreign currency denominated long-term obligations.
We are exposed to interest rate risk primarily as a result of the Bank Credit
Facility, which at the end of the second quarter of 2000 consisted of PLN
tranche of PLN 485.0 million at the rate of WIBOR plus 0,6% p.a. and
multicurrency tranche utilized in US$ for the amount of US$ 25.0 million at the
rate of LIBOR plus 0,6% p.a.. The table below presents principal payments under
the Bank Credit Facility including principal and related weighted average
interest rates for the balance drawn under the facility as of June 30, 2000.
The weighted average interest rates computed do not consider the rate at which
individual drawdowns on the loan will be refinanced. Each drawdown has a
short-term maturity date, which can be rolled over, subject to the annual
repayment schedule for the entire facility.
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EXPECTED M ATURITY DATE
(in thousands of Zloty)
<TABLE>
<CAPTION>
------------------------------------------------------------------------------------------------------------------------------
Bank Credit 2000 2001 2002 2003 2004 Thereafter Total Present
Facility Value
6/30/00
------------------------------------------------------------------------------------------------------------------------------
(in thousands of PLN)
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Variable Rate
(PLN) 45,532 134,267 178,680 172,863 151,458 130,053 812,853 485,000
------------------------------------------------------------------------------------------------------------------------------
Weighted
Average
Effective Interest
Rate 18.776% 18.776% 18.776% 18.776% 18.776% 18.776% 18.776% 18.776%
------------------------------------------------------------------------------------------------------------------------------
Variable Rate
(multicurrency) 3,982 7,964 7,964 7,964 7,964 117,028 152,866 109,768
------------------------------------------------------------------------------------------------------------------------------
Weighted
Average
Effective Interest
Rate 7.2554% 7.2554% 7.2554% 7.2554% 7.2554% 7.2554% 7.2554% 7.2554%
------------------------------------------------------------------------------------------------------------------------------
</TABLE>
Tab. 2 Principal payments under the Bank Credit Facility
LIQUIDITY AND CAPITAL RESOURCES
Our liquidity requirements arise primarily from the need to fund capital
expenditures for the expansion of our business, GSM 900 and GSM 1800 license
fees and for our working capital requirements. On December 17, 1997, we
entered into a loan facility arranged by Citibank (Poland) S.A. and Citibank
International plc. The lenders agreed to make loans to us, on a term loan,
guarantee or revolving credit basis (as desired by) in the aggregate principal
amount of not more than DM 672.0 million (the "Bank Credit Facility") subject
to PTC having met requiredlevels for a number of financial covenants. The Bank
Credit Facility consists of two tranches: (i) an offshore tranche of up to DM
420.0 million may be drawn in Deutschmark, U.S. dollars, Euro or other freely
convertible currencies as agreed by the lenders; and (ii) a domestic tranche
equal to the Zloty equivalent of DM 252.0 million available to be drawn in
Zloty. At the end of June 2000, we utilized PLN 485.million and US$ 25.0
million.
On August 24, 1999 the operating shareholders extended to us USD 75.0 million
in subordinated loans to fund the GSM 1800 license and provide continued
liquidity as follows: Elektrim, Zloty equivalent of USD 39.8 million;
DeTeMobil, USD 17.6 million; and MediaOne(1), USD 17.6 million. Each
shareholder loan bears an interest rate of 12.5 percent compounded
semi-annually on June 17th and December 17th. The full loan balance and all
accrued interest are due on June 19, 2006. However, interest may be due
earlier dependent on our ability to meet the Bank Credit Facility covenants.
In November 1999 we issued 11 1/4% Notes of USD 150 million and Euro 300
million with a maturity date in 2009. The interest is payable on June 1 and
December 1 each year starting with June 1, 2000. We were obliged to establish
two escrow accounts to secure the 11 1/4% Notes and to pay the first five
scheduled interest payments on the 11 1/4% Notes. On May 2,
-----------------------------------------------------------------------
(1) From March 23, 2000 MediaOne is a part of Deutche Telekom group.
13
<PAGE> 14
2000 we closed the exchange offer of our 11 1/4% Notes into freely traded 11
1/4% Senior Subordinated Guaranteed Notes.
Our net cash generated from operating activities during the six months ended
June 30, 2000 was PLN 177.9 million, as compared to PLN 99.7 million during the
six months ended June 30, 1999. Non-cash provisions and net non-operating
items for the same period totaled PLN 653.8 million and PLN 354.4 million, for
the two quarters of 2000 and 1999 respectively, and principally reflect
depreciation and amortization, provisions for doubtful debtors, unrealized
foreign exchange losses and accrued interest expense. In addition, cash used
for net working capital items for six months of 2000 was PLN 85.6 million as
compared to cash generated from net working capital items of PLN 63.2 million
for the same period in 1999. This was primarily due to increased cash used to
purchase inventory.
Our net cash used in investing activities was PLN 675.7 million for the six
months ended June 30, 2000, as compared to PLN 520.7 million for the six months
ended June 30, 1999, principally reflecting payments to suppliers of network
capital equipment used in the ongoing build-out of our GSM 900 and 1800 network
and payment of GSM 900 license fee. Our net cash used in financing activities
was PLN 488.3 million for the six months ended June 30, 2000 as compared to net
cash generated from financing activities PLN 466.6 million for the six months
ended June 30, 1999, reflecting repayment of a multicurrency tranche under the
Bank Credit Facility.
Management anticipates that capital expenditures for the remaining two quarters
of 2000 will total approximately PLN 1.6 billion, including expenditures
related to our backbone network. We also expect that the level of our capital
expenditures will remain significant for the medium term, as we upgrade our
network capacity, coverage and quality.
In order to implement the current business plan, we will need to raise EUR 650
million to repay existing Bank Credit Facility and to anticipat working capital
requirements, capital expenditures and other operating needs. We have already
signed the intention letter with one of the biggest banks and the due diligence
process has been launched. We would like to start utilizing the new Bank Credit
Facility prior to the end of 2000.
14
<PAGE> 15
SIGNIFICANT TRANSACTIONS AND AGREEMENTS
During the last quarter we have signed several important contracts and we have
made some material changes the existing agreements.
INTERCONNECT AGREEMENTS
During the second quarter of 2000 we have signed interconnect agreements with
Telefonia Lokalna and El-Net.
We have also signed the contract with El-Net, owned by Elektrim. El-Net will
provide us with fixed line telecommunication services, and replaced partially
the contract signed with Telekomunikacja Polska in 1995.
LEGAL PROCEEDINGS
INTERCONNECT
As a result of our initial interconnect negotiations with TPSA the Supreme
Administrative Court issued a decision (the Interconnect Decision) regarding
our settlement process with TPSA for interconnect payments. TPSA appealed the
Court's decision. We have neither received a judgment from the Supreme
Administrative Court regarding TPSA's appeal of the Interconnect Decision, nor
has TPSA withdrawn this appeal despite the interconnect agreement between us,
but anyway the interconnect contract signed on December 9, 1998 is still in
force.
VOICE OVER INTERNET PROTOCOL
On February 1, 2000, we received a summons from the State Telecommunications
and Postal Inspection (PITiP) as a result of an inspection conducted by the
agency in January 2000 of our Internet access services (VoIP). The summons
ordered us to cease providing international telephone service over the Internet
network. In response, we applied for reconsideration of the case, and on
February 10, 2000, we received a decision from the Minister of Communications,
which rendered the summons invalid. It was determined that we could continue
to offer Internet access services for subscribers who have data transmission
service until May 2000, when it was anticipated that a new regulation will be
prepared by the Ministry of Communications. We did participate in preparing the
new Internet access regulations in conjunction with the Ministry. The
regulation is not yet issued but is supposed to be in force by the end of
August 2000 and for the time being we do provide VoIP services as we did from
December 1999.
DATA SECURITY
An investigation by the General Inspector for Personal Data Protection's office
was conducted in the fourth quarter of 1999 of our sales practices. Although
the post-control protocol report resulting from the inspection neither outlined
a legal situation or suggested changes, it did reveal that we require our
customers to provide more identification than the GIODO office generally
believes is necessary. In our opinion, such documentation is
15
<PAGE> 16
necessary to verify the identity of our subscribers who enter into an extended
agreement for telecommunications services, and also, to assist us in minimizing
the risk of subscriber fraud. Together with other telecom operators in Poland,
we submitted a proposal to the Ministry of Communications regarding changes to
the existing law. The Ministry of Communications has not taken a position on
the matter, nor has it responded to the proposal. However, a new
telecommunication regulation, which should be approved this year, is
anticipated to include the paragraphs allowing to collect the personal data,
which according to the GIODO are not allowed to be collected. On July 14, 2000
the GIODO issued the decision in which it is stated that all the transgressions
of the existing law should be removed. On July 28, we appealed this decision,
admitting that the GIODO's objections are groundless. We made a motion to GIODO
for further examination of the case.
BUSINESS ENVIRONMENT
THE COMPANY ON WIRELESS MARKET
We do operate on quite competitive market with three wireless operators active
in bothe GSM 900 and 1800 MHz. During last quarter to become more competitive
we introduced new tariffs and products with the launch of GSM 1800 frequency:
(i) restored Hallo tariff; (ii) info line for corporate customers; (iii) Short
Message Service for prepaid customers, which allows them to send and receive
messages of up to 60 characters; (iv) direct debit as one of methods of
payments for our customers.
On June 16, we introduced our Wireless Application Protocol (WAP) service,
offering a wide range of WAP handsets and own WAP portal created by Creative
Team Company exclusively for us. We offer our own WAP page with Company
information as well as useful towns' information and possibility to visit other
WAP pages, with more than 200 Polish language pages.
In the second quarter of 2000 we opened the chain of Eranet Cafes, allowing
wider group of people to be closer to the Internet network. We open our cafes
in ten cities including Katowice, Krakow and Szczecin and we hope that this
kind of investment will bring the Internet closer to our subscribers. Our
subscribers are able to open e-mail accounts manageable from both mobile phone
and PC station even from the Eranet Cafes. We believe that together with the
WAP introduction and opening of Eranet cafes our subscribers will be getting
more and more used to the Internet as such and to the Internet via mobiles
particularly.
We are also a precursor in loyalty program Stokrotka launched on October 15,
1999. From February 15, 2000 our post-paid subscribers, can exchange their
points for the telephone accessories or partner awards. At end of June 2000,
more than 1 million customers participated in the program of which 220 hundreds
participants were qualified to take advantage of PTC and our exclusive
partnership offers include LOT Polish Airlines, British Airways, Panasonic and
Kodak. More than 20 thousands of prizes were already ordered.
16
<PAGE> 17
During the second quarter of 2000 we were recognized for several service
awarded with Golden Medal on the INFOSYSTEM fairs for Eranet first e-mail
access from wireless network.
17
<PAGE> 18
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
POLSKA TELEFONIA CYFROWA Sp. z o.o.
(Registrant)
By: /s/ Boguslaw Kulakowski
-----------------------
Boguslaw Kulakowski, Director General
By: /s/ Wilhelm Stuckemann
----------------------
Wilhelm Stuckemann, Director of Network Operations
August 10, 2000
18
<PAGE> 19
POLSKA TELEFONIA CYFROWA SP. Z O.O.
CONDENSED
CONSOLIDATED FINANCIAL STATEMENTS
TOGETHER WITH REPORT OF
INDEPENDENT PUBLIC ACCOUNTANTS
FOR THE THREE MONTHS AND SIX MONTHS PERIODS ENDED
JUNE 30, 2000 AND JUNE 30, 1999
<PAGE> 20
REPORT OF INDEPENDENT ACCOUNTANTS
To the Supervisory Board of Polska Telefonia Cyfrowa Sp. z o.o.
We have reviewed the accompanying condensed consolidated balance sheets of
Polska Telefonia Cyfrowa Sp. z o.o. (a Polish limited liability company) and
its subsidiaries as of June 30, 2000 and 1999, and the related condensed
consolidated statements of operations and cash flows for the three months and
six months periods then ended. These condensed consolidated financial
statements are the responsibility of the Company's management.
We conducted our review in accordance with standards established by the
American Institute of Certified Public Accountants. A review of interim
condensed consolidated financial information consists principally of applying
analytical procedures to financial data and making inquiries of persons
responsible for financial and accounting matters. It is substantially less in
scope than an audit conducted in accordance with generally accepted auditing
standards, the objective of which is the expression of an opinion regarding the
consolidated financial statements taken as a whole. Accordingly, we do not
express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying condensed consolidated financial statements for
them to be in conformity with International Accounting Standards issued by the
International Accounting Standards Committee.
We have previously audited, in accordance with generally accepted auditing
standards in the United States and International Standards on Auditing, the
consolidated balance sheet of Polska Telefonia Cyfrowa Sp. z o.o. and its
subsidiaries as of December 31, 1999 and the related consolidated statements of
operations and cash flows for the period from January 1, 1999 to December 31,
1999, and, in our report dated March 6, 2000, we expressed an unqualified
opinion on those consolidated financial statements.
Warsaw, Poland
July 31, 2000
<PAGE> 21
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS FOR THE THREE MONTHS AND SIX MONTHS PERIODS
ENDED JUNE 30, 2000 AND JUNE 30, 1999
(IN THOUSANDS OF PLN)
------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTES SIX MONTHS THREE MONTHS SIX MONTHS THREE MONTHS
----- ENDED ENDED ENDED ENDED
JUNE 30, 2000 JUNE 30, 2000 JUNE 30, 1999 JUNE 30, 1999
------------- ------------- ------------- -------------
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
<S> <C> <C> <C> <C> <C>
NET SALES 7 1,666,129 870,234 1,103,542 614,390
COST OF SALES 8 (1,077,279) (548,071) (761,501) (432,352)
------------- ------------- ------------- -------------
GROSS MARGIN 588,850 322,163 342,041 182,038
OPERATING EXPENSES 8 (363,373) (196,171) (260,786) (156,924)
------------- ------------- ------------- -------------
OPERATING PROFIT 225,477 125,992 81,255 25,114
NON-OPERATING ITEMS
Interest and other financial income 9 61,780 63,660 4,861 51,650
Interest and other financial expenses 10 (431,829) (367,615) (188,845) (52,320)
------------- ------------- -------------- --------------
INCOME / (LOSS) BEFORE TAXATION (144,572) (177,963) (102,729) 24,444
TAXATION BENEFIT / (CHARGE) 11 1,871 3,718 (26,465) (29,543)
------------- ------------- ------------- -------------
COMPREHENSIVE NET LOSS (142,701) (174,245) (129,194) (5,099)
============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-------------------------------------------------------------------------------
- 1 -
<PAGE> 22
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
AS AT JUNE 30, 2000 AND DECEMBER 31, 1999
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
NOTES AT AT
----- JUNE 30, DECEMBER 31,
-------- -----------
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C> <C>
CURRENT ASSETS
Cash and cash equivalents 24 102,552 1,095,509
Short-term investments 12 202,583 198,468
Debtors and prepayments 13 470,269 409,410
Accounts receivable from
State Treasury 13 12,133 54,835
Inventory 14 255,604 183,980
------------ ------------
1,043,141 1,942,202
LONG-TERM ASSETS
Tangible fixed assets, net 15 2,965,823 2,573,905
Intangible fixed assets, net 16 1,022,697 1,050,775
Financial assets 12 208,408 301,829
Deferred cost 17 93,419 85,253
------------- -------------
4,290,347 4,011,762
------------- -------------
TOTAL ASSETS 5,333,488 5,953,964
============= =============
CURRENT LIABILITIES 18 1,193,503 1,179,204
LONG-TERM INTEREST-BEARING LIABILITIES 19 4,087,146 4,578,412
DEFERRED TAX LIABILITY, NET 11 24,857 27,322
PROVISIONS FOR LIABILITIES AND CHARGES 20 2,877 1,220
-------------- --------------
TOTAL LIABILITIES 5,308,383 5,786,158
-------------- --------------
SHAREHOLDERS' EQUITY
Share capital 21 471,000 471,000
Accumulated deficit (445,895) (303,194)
-------------- --------------
25,105 167,806
-------------- --------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 5,333,488 5,953,964
============== ==============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-------------------------------------------------------------------------------
- 2 -
<PAGE> 23
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS PERIODS ENDED
JUNE 30, 2000 AND JUNE 30, 1999
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SIX MONTHS SIX MONTHS
ENDED ENDED
JUNE 30, 2000 JUNE 30, 1999
------------- -------------
(UNAUDITED) (UNAUDITED)
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES: (see Note 24)
NET LOSS BEFORE TAXATION (144,572) (102,729)
ADJUSTMENTS FOR:
Depreciation and amortization 235,121 115,068
Charge to provision for doubtful debtors 76,149 59,540
Charge to provision for inventory 4,855 2,423
Other provisions and special funds 1,657 (277)
Unrealized foreign exchange losses, net 87,139 74,760
Loss/(profit) on disposal of tangibles and intangibles 3,343 (5)
Interest expense, net 245,575 102,948
Other - -
------------ ------------
OPERATING CASH FLOWS BEFORE WORKING CAPITAL CHANGES 509,267 251,728
Increase in inventory (76,480) (16,027)
Increase in debtors, prepayments and deferred cost (92,332) (184,219)
Increase in trade payables and accruals 83,256 137,021
------------ ------------
CASH FROM OPERATIONS 423,711 188,503
Interest paid (245,812) (63,234)
Income taxes paid - (25,549)
------------ ------------
NET CASH GENERATED FROM OPERATING ACTIVITIES 177,899 99,720
CASH FLOWS USED IN INVESTING ACTIVITIES:
Purchases of intangible fixed assets (139,386) (54,832)
Purchases of tangible fixed assets (670,247) (466,317)
Proceeds from long term investments, net 99,012 -
Proceeds from sale of equipment and intangibles 14,541 42
Interest received 20,417 440
------------ -----------
NET CASH USED IN INVESTING ACTIVITIES (675,663) (520,667)
CASH FLOWS (USED IN)/FROM
FINANCING ACTIVITIES:
(Repayment of)/proceeds from long-term borrowings (488,349) 470,529
Net change in overdraft facility - (3,969)
------------ -----------
NET CASH (USED IN)/GENERATED FROM FINANCING ACTIVITIES (488,349) 466,560
NET (DECREASE)/INCREASE IN CASH AND CASH EQUIVALENTS (986,113) 45,613
EFFECT OF FOREIGN EXCHANGE CHANGES ON CASH AND CASH EQUIVALENTS (6,844) (3)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 1,095,509 5,695
------------ ------------
CASH AND CASH EQUIVALENTS AT END OF PERIOD 102,552 51,305
============ ============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-------------------------------------------------------------------------------
- 3 -
<PAGE> 24
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
FOR THE SIX MONTH PERIODS
ENDED JUNE 30, 2000 AND JUNE 30, 1999
(IN THOUSANDS OF PLN)
--------------------------------------------------------------------------------
<TABLE>
<CAPTION>
SHARE ACCUMULATED TOTAL
----- ----------- -----
CAPITAL DEFICIT
------- -------
<S> <C> <C> <C>
BALANCE AT JANUARY 1, 1999 471,000 (180,691) 290,309
(RESTATED)
Comprehensive net loss for the period,
as originally reported - (130,377) (130,377)
Change in accounting policy with respect - 1,183 1,183
to implementation of IAS 38
------------- ------------- --------------
BALANCE AT JUNE 30, 1999 471,000 (309,885) 161,115
(RESTATED, UNAUDITED) ============= ============= ==============
BALANCE AT JANUARY 1, 2000 471,000 (303,194) 167,806
Comprehensive net loss for the period - (142,701) (142,701)
------------- ------------- -------------
BALANCE AT JUNE 30, 2000 471,000 (445,895) 25,105
(UNAUDITED) ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these
condensed consolidated financial statements.
-------------------------------------------------------------------------------
- 4 -
<PAGE> 25
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
1. INCORPORATION AND PRINCIPAL ACTIVITIES
Polska Telefonia Cyfrowa Sp. z o.o. (the "Company") was incorporated
under Polish Law as a limited liability company based on a Notarial
Act dated December 20, 1995. The Company is located in Warsaw, Al.
Jerozolimskie 181 and was registered in the Regional Court in
Warsaw, XVI Commercial Department on December 27, 1995.
The principal activities of the Company are providing cellular
telephone communication services in accordance with the GSM 900 and
1800 licenses (see Note 4b.) granted by the Minister of
Telecommunications and the sale of cellular telephones and
accessories compatible with its cellular services.
During 1996 the Company signed an interim interconnect agreement
with Telekomunikacja Polska S.A. ("TPSA") on a "bill and keep"
basis. On May 22, 1997 the Ministry of Communications issued a
decision with respect to new interconnect arrangements between the
Company and TPSA. The decision was binding for both parties,
however, certain terms, including the effective date, were still to
be agreed. The decision defined interconnect, international and
leased-lines settlements with TPSA.
In the course of 1997, TPSA filed in the Supreme Administrative
Court an appeal against the above mentioned decision. In the appeal,
it challenges the entitlement of the Minister to issue the above
decision on the basis that the established interconnect rates are
not fair.
On December 9, 1998, the Company signed a framework agreement with
TPSA defining the terms of mutual interconnect arrangements.
Notwithstanding the interconnect frame agreement, TPSA appeal to the
Supreme Administrative Court has not been withdrawn.
On February 1, 2000, the Company received a summons from the State
Telecommunications and Postal Inspection as a result of an
inspection conducted by the agency in January 2000 of the Company's
Internet services. The summons ordered the Company to cease
providing international telephone service over the Internet network.
In response, the Company applied for reconsideration of the case,
and on February 10, 2000, the Company received a decision from the
Minister of Communications which rendered the summons invalid. It
was determined that the Company could continue to offer Internet
access services for subscribers who have data transmission service
until a new regulation will be prepared by the Ministry of
Communications. The Company also participates in preparing the new
Internet access regulations in conjunction with the Ministry of
Communications. The new regulation was not issued till the end of
July 2000.
-------------------------------------------------------------------------------
- 5 -
<PAGE> 26
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
2. PRINCIPLES OF CONSOLIDATION
a. GROUP ENTITIES
The condensed consolidated financial statements include the
financial statements of Polska Telefonia Cyfrowa Sp. z o.o. and its
wholly owned subsidiaries, PTC International Finance B.V. and PTC
International Finance (Holding) B.V.
All intercompany balances and transactions are eliminated in
consolidation.
On June 17, 1997, PTC International Finance B.V. was incorporated
under the laws of the Netherlands for the purpose of issuing
long-term Notes ("10 3/4 Notes", see Note 19). The Company has
acquired 40 fully-paid shares with a par value of 1,000 Netherlands
Guilders each, issued by PTC International Finance B.V. PTC
International Finance B.V. has no subsidiaries of its own.
On November 5, 1999 PTC International Finance II S.A. was
incorporated under the laws of Luxembourg and on November 16, 1999,
PTC International Finance (Holding) B.V. was incorporated under the
laws of the Netherlands for the purpose of issuing long-term Notes
("11 1/4 Notes", see Note 19). The Company has acquired 40
fully-paid shares with a par value of 1,000 Netherlands Guilders
each, issued by PTC International Finance (Holding) B.V.
Additionally, the Company has acquired 125 fully-paid shares with a
par value of 1,000 Euro each issued by PTC International Finance II
S.A. and contributed all of its shares except one, (owned by the
Company, but held locally, due to legal requirements) to PTC
International Finance (Holding) B.V. in exchange for 1 additional
share of PTC International Finance (Holding) B.V. Thus, PTC
International Finance II S.A. became a fully owned subsidiary of PTC
International Finance (Holding) B.V. PTC International Finance II
S.A. has no subsidiaries of its own.
b. REPORTING CURRENCY
The Company primarily generates and expends cash through its
operating activities in Polish zloty ("PLN"). Additionally, all of
the receivables and the large part of its short-term liabilities are
PLN denominated. Therefore, Management has designated the PLN as the
reporting (functional) currency of the Company.
The accompanying condensed consolidated financial statements are
reported in thousands of PLN.
-------------------------------------------------------------------------------
- 6 -
<PAGE> 27
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
-------------------------------------------------------------------------------
- 7 -
<PAGE> 28
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
3. ACCOUNTING STANDARDS
The Company maintains its books of account in accordance with
accounting principles and practices employed by enterprises in
Poland as required by Polish accounting regulations. The
accompanying financial statements reflect certain adjustments not
reflected in the Company's statutory books to present these
statements in accordance with standards issued by the International
Accounting Standards Committee. These adjustments and their effect
on earnings for the three months and six months periods ended June
30, 2000 and June 30, 1999 are shown in Note 25 to these Financial
Statements.
The differences between International Accounting Standards ("IAS")
and generally accepted accounting principles in the United States
("U.S. GAAP") and their effect on net results for the three months
and six months periods ended June 30, 2000 and June 30, 1999 have
been presented in Note 26 to these Financial Statements.
The IAS rules that were mandatory as of 30 June 2000 were applied to
these financial statements.
In Management's opinion, the financial statements for the three
months and six months periods ended June 30, 2000 and June 30, 1999
include all adjustments necessary for a fair statement of the
results for the period. All such adjustments are of normal,
recurring nature.
-------------------------------------------------------------------------------
- 8 -
<PAGE> 29
POLSKA TELEFONIA CYFROWA SP. Z.O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
4. PRINCIPAL ACCOUNTING POLICIES
a. TANGIBLE FIXED ASSETS
Tangible fixed assets are shown at historical cost less accumulated
depreciation.
Depreciation is calculated using the straight-line method over the
estimated useful life of the asset. The following depreciation rates
have been applied:
<TABLE>
<CAPTION>
ANNUAL RATE ESTIMATED
----------- ---------
IN % USEFUL LIVES IN YEARS
---- ---------------------
<S> <C> <C>
Leasehold improvements Lease term
Buildings 2.5% 40
Plant and equipment 4.0 - 30.0% 3.3 - 25
Motor vehicles 12.5 - 30.0% 3.3 - 8
Other 10.0 - 20.0% 5 - 10
</TABLE>
b. INTANGIBLE FIXED ASSETS
License
The Company has acquired from the Polish State, represented by the
Ministry of Communications, a license to provide telecommunication
services according to ETSI/GSM standard in the 900 MHz band,
including a permit to install and utilize telecommunication
equipment and network, and allocation of frequencies in the ETSI/GSM
900 MHz band ("the GSM 900 license").
The GSM 900 license was acquired on February 23, 1996 and has been
valued at the present value of the payments due to the State. For
the period of development of the GSM 900 system, the cost of
interest and foreign exchange losses were capitalized in the cost of
the asset. This development period terminated during the third
quarter of 1997. The GSM 900 license is amortized over the period of
its validity, i.e. 15 years from the date of acquisition on a
straight-line basis.
On August 11, 1999 the Ministry of Communications granted the
Company a license to provide telecommunication services according to
ETSI/GSM standard in the 1800 MHz band, including a permit to
install and utilize telecommunication equipment and network, and
allocation of frequencies in the ETSI/GSM 1800 MHz band ("the GSM
1800 license"). The GSM 1800 license is valid for 15 years from the
date of acquisition, though it allowed starting operations of
relevant services from March 1, 2000.
-------------------------------------------------------------------------------
- 9 -
<PAGE> 30
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
4. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
b. INTANGIBLE FIXED ASSETS (CONTINUED)
The GSM 1800 license has been valued at the present value of the
payments due plus the cost of interest and foreign exchange losses
capitalized during the development period. The development period
terminated together with the start of operational validity of the
GSM 1800 license on March 1, 2000. The GSM 1800 license will be
amortized over the period of its operational validity, i.e. 14.5
years.
The above-described GSM 900 license and the GSM 1800 license are not
transferable assets.
Other intangible fixed assets
Other intangible assets are stated at cost less accumulated
amortization. Amortization is calculated using the straight-line
method over the estimated useful life of the asset. The following
amortization rates have been applied:
<TABLE>
<CAPTION>
ANNUAL RATE
-----------
IN %
----
<S> <C>
Computer software 10.0 - 50.0%
Trademarks 6.7%
</TABLE>
c. DEBTORS
Amounts due from debtors are shown net of provisions for doubtful
accounts. The provisions are based on specific amounts due where
realization is unlikely and on a general basis, calculated using
historic collection experience.
d. INVENTORIES
Inventories are stated at the lower of cost and net realizable
value. Cost is determined principally under the average method.
Provisions are set for obsolete, slow moving and damaged inventory
and are deducted from the related inventory balances.
e. SPECIAL FUNDS
Special funds consist primarily of the social fund. The social fund
is an employer's obligation based on a government mandated
calculation based on number of employees and the monthly minimum
wage in Poland. The amounts calculated under this formula must be
used for the benefits of the employees.
-------------------------------------------------------------------------------
- 10 -
<PAGE> 31
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
4. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
f. FOREIGN CURRENCY
Transactions denominated in foreign currencies are recorded in the
local currency (the Polish zloty) at actual exchange rates
prevailing at the date of the transaction. Monetary assets and
liabilities denominated in foreign currencies are reported at the
rates of exchange prevailing at the end of the period. Any gain or
loss arising from a change in exchange rates subsequent to the date
of the transaction is recorded in the statement of operations as a
foreign exchange gain or loss and included in non-operating items in
the statement of operations, unless capitalized as discussed in
point (b) above (license) and (l) below (borrowing costs).
g. VACATION PAY
Vacation pay is accrued when earned by employees.
h. TAXATION
The income tax charge is based on profit for the period and takes
into account deferred taxation. Deferred taxation is calculated
using the liability method. Under the liability method the expected
tax effects of temporary differences are determined using enacted
tax rates and reported either as liabilities for taxes payable or
assets representing the amounts of income taxes recoverable in
future periods in respect of deductible temporary differences and
the carryforward of unused losses. Temporary differences are the
differences between the carrying amount of an asset or liability in
the balance sheet and its taxable base.
Deferred tax assets are recognized for all deductible temporary
differences to the extent that it is probable that taxable profit
will be available against which the deductible temporary differences
can be utilized.
i. NET SALES
Net sales consists of the value of sales (excluding value added tax)
of goods and services in the normal course of business but excludes
extraordinary disposals of inventory and other assets.
Revenue is recognized when services are provided or goods are
shipped out. Sales allowances are accounted in the same period when
the related portion of revenue is recognized.
-------------------------------------------------------------------------------
- 11 -
<PAGE> 32
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
4. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
j. FAIR VALUE OF FINANCIAL INSTRUMENTS
The fair value of the Company's financial instruments approximates
the reported carrying amounts because of their short-term nature
and/or floating market interest rates, except for long-term Notes,
finance leases and GSM license liability, as disclosed in Note 19.
k. USE OF ESTIMATES
Preparation of financial statements requires Management to make
estimates and assumptions that affect the reported amounts of assets
and liabilities and disclosure of contingent assets and liabilities
at the date of the financial statements and the reported amounts of
revenues and expenses during the reporting period. Actual results
could differ from these estimates.
l. CAPITALIZATION OF BORROWING COSTS
Borrowing costs (including interest, foreign exchange gains and
losses and the discount relating to the present value of license
payments) that are attributable to the acquisition, construction or
production of qualifying assets are capitalized as part of the cost
of those assets. The borrowing costs capitalized are only those
incurred during the period of construction or production of assets.
m. ADVERTISING EXPENSE
The Company charges the cost of advertising to expense as incurred.
-------------------------------------------------------------------------------
- 12 -
<PAGE> 33
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
4. PRINCIPAL ACCOUNTING POLICIES (CONTINUED)
n. CONCENTRATION OF CREDIT RISK
The Company operates in one industry segment, providing cellular
telephone communication services. Substantially all of the Company's
trade debtors are Polish businesses and individuals. Further, the
Company has established a network of dealers within Poland to
distribute its products. The dealers share many economic
characteristics and receivables from each of these dealers present
similar risk to the Company. Concentrations of credit risk with
respect to trade receivables are limited due to the large number of
customers comprising the Company's customer base. Ongoing credit
evaluations of customers' financial condition are performed and
generally, no collateral is required. The Company maintains
provisions for potential credit losses and such losses, in the
aggregate, have not exceeded management's estimates. No single
customer accounts for 10% or more of revenues, except for
interconnect transaction with TPSA.
The balance of receivables as at June 30, 2000 representing the
total net credit risk exposure at this date is presented in Note 13.
5. CHANGES IN ACCOUNTING POLICIES
a. DEVELOPMENT AND START-UP COSTS CAPITALIZED
In the fourth quarter of 1999, the Company has adopted IAS 38
"Intangible Assets" in accounting for its intangible assets. The
resulting change in accounting policy regarding development and
start-up costs was applied retrospectively. The resulting adjustment
to the opening balance of accumulated deficit as at January 1, 1999
resulted in an increase by PLN 6,530. Additionally, the net loss
reported for the six months period ended June 30, 1999 was decreased
by PLN 1,183.
-------------------------------------------------------------------------------
- 13 -
<PAGE> 34
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
6. FOREIGN CURRENCY MANAGEMENT POLICIES
Sales revenues are denominated in Polish zloty. A significant
portion of expenses and liabilities, however, are denominated in
other currencies. These include liabilities to the Polish government
for the GSM 900 license and GSM 1800 license, which are linked to
Euro and payable in Polish zloty, and liabilities to suppliers of
handsets, which are generally denominated in Deutschmarks, French
Francs or U.S. Dollars. Additionally, the 10 3/4 Notes, 11 1/4 Notes
and shareholder loans are denominated in U.S. dollars or Euros, and
a portion of the Loan facility is denominated in U.S. Dollars. As a
result, operating income and cash flows are and will remain
significantly exposed to an appreciation in these non-Polish
currencies against the Polish zloty.
Future currency exchange fluctuations are expected to continue to
have a significant effect on the financial condition and results of
operations. To manage the currency risk the Company entered into
foreign currency forward transactions. The Company's hedging policy
allows for the use of forwards, swaps and options for minimizing
currency and interest rate risks.
As of June 30, 2000 the Company concluded the set of short-term
transactions (foreign currency forwards and NDF) to hedge the
foreign currency liabilities that are scheduled to come due in the
next 12 months. These transactions are booked at their fair value.
Their valuation resulted in a gain of PLN 11,320 for the six month
period ended June 30, 2000.
Starting in late 1998 and continuing through the current year, the
Company drew funds from the bank credit facility and exhausted the
Polish zloty denominated tranche first in order to minimize the
negative effects of currency exchange fluctuations.
In 1999 the Company has entered into new contracts with its network
capital equipment suppliers. Under the contracts all new deliveries
and services are charged and settled in zloty.
In order to manage foreign currency risk, the Company have changed
payment currency with its other suppliers from foreign currency to
Polish zloty and also replace the Loan facility with an increased
Polish zloty portion of the debt.
-------------------------------------------------------------------------------
- 14 -
<PAGE> 35
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
7. NET SALES
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
-------- -------- -------- --------
2000 2000 1999 1999
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Service revenues and fees 1,574,559 830,829 994,395 551,177
Sales of telephones and accessories 91,570 39,405 109,147 63,213
----------- ----------- ----------- -----------
1,666,129 870,234 1,103,542 614,390
=========== =========== ============ =============
</TABLE>
The Company operates in one segment (providing cellular
telecommunication services and the ancillary sale of cellular
telephones and accessories) and in one market (the Republic of
Poland).
8. COSTS AND EXPENSES
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
-------- -------- -------- --------
2000 2000 1999 1999
---- ---- ---- ----
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------- ------------- ------------- -------------
<S> <C> <C> <C> <C>
Cost of sales:
Cost of services sold 647,352 341,070 393,148 212,732
Cost of sales of telephones and
accessories 429,927 207,001 368,353 219,620
------------ ----------- ----------- -----------
1,077,279 548,071 761,501 432,352
Operating expenses:
Selling and distribution costs 274,757 145,592 192,287 109,117
Administration and other operating cost 88,616 50,579 68,499 47,807
----------- ----------- ----------- -----------
363,373 196,171 260,786 156,924
----------- ----------- ----------- -----------
1,440,652 744,242 1,022,287 589,276
=========== =========== =========== ===========
</TABLE>
-------------------------------------------------------------------------------
- 15 -
<PAGE> 36
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
8. COSTS AND EXPENSES (CONTINUED)
The following costs and expenses were included in cost of sales:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 31, JUNE 30, JUNE 30,
-------- --------- -------- --------
2000 2000 1999 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Merchandise sold 425,072 204,190 365,930 218,197
Depreciation and amortization 213,812 115,454 103,727 57,400
Other external services 112,518 61,431 69,355 29,952
Commissions 58,185 24,565 68,316 41,035
Interconnect 89,780 47,468 54,557 31,670
Leased lines 77,399 40,706 47,815 24,602
Roaming 50,560 27,681 29,788 15,680
Wages and salaries 23,401 12,915 12,133 7,694
Materials and energy 8,135 4,907 3,506 2,687
Social security and other benefits 8,376 5,109 3,416 2,341
Taxes and other charges 3,247 (184) 2,471 1,892
Charge to inventory provision 4,855 2,811 2,423 1,423
Other 1,939 1,018 (1,936) (2,221)
------------ ------------ ------------ ------------
1,077,279 548,071 761,501 432,352
============ ============ ============ ============
</TABLE>
The following costs and expenses were included in selling and
distribution costs:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 31, JUNE 30, JUNE 30,
-------- --------- -------- --------
2000 2000 1999 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Advertising costs 98,471 54,851 73,143 40,307
Charge to doubtful debtors provision 76,149 38,526 59,540 34,124
Wages and salaries 45,586 22,988 29,164 17,574
External services 27,066 15,205 11,346 6,923
Social security and other benefits 11,789 6,578 7,672 3,974
Depreciation and amortization 10,072 5,921 4,045 1,992
Materials and energy 6,134 3,388 3,543 1,972
Taxes and other charges 2,576 1,437 3,157 1,800
Other (3,086) (3,302) 677 451
----------- ----------- ----------- -----------
274,757 145,592 192,287 109,117
=========== =========== =========== ============
</TABLE>
-------------------------------------------------------------------------------
- 16 -
<PAGE> 37
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
8. COSTS AND EXPENSES (CONTINUED)
The following costs and expenses were included in administration
costs:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
-------- --------- -------- --------
2000 2000 1999 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
External services 35,828 17,458 32,671 26,361
Wages and salaries 22,203 11,107 17,174 9,929
Depreciation and amortization 11,237 5,228 7,296 3,681
Social security and other benefits 7,194 3,447 4,088 2,174
Materials and energy 3,040 1,722 2,016 1,004
Taxes and other charges 3,721 2,631 2,880 2,284
Other 5,393 8,986 2,374 2,374
---------- ---------- ---------- ----------
88,616 50,579 68,499 47,807
========== ========== ========== ==========
</TABLE>
9. INTEREST AND OTHER FINANCIAL INCOME
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
-------- -------- -------- --------
2000 2000 1999 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
------------------ ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Foreign exchange gains 36,737 53,426 4,421 51,515
Interest income 25,043 10,234 440 135
---------- ---------- ----------- ----------
61,780 63,660 4,861 51,650
========== ========== ========== ==========
</TABLE>
10. INTEREST AND OTHER FINANCIAL EXPENSES
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
-------- -------- -------- --------
2000 2000 1999 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
- ---------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Interest expense 270,618 135,765 103,388 51,469
Foreign exchange losses 161,211 231,850 85,457 851
---------- ---------- ---------- ----------
431,829 367,615 188,845 52,320
========== ========== ========== ==========
</TABLE>
-------------------------------------------------------------------------------
- 17 -
<PAGE> 38
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
11. TAXATION
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
-------- -------- -------- --------
2000 2000 1999 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- ---------------- ----------------- ----------------
<S> <C> <C> <C> <C>
Polish current tax charge - - (17,359) (17,359)
Polish deferred tax benefit / (charge) 2,465 4,155 (8,776) (12,017)
Foreign current tax charge (594) (437) (330) (167)
------------ ----------- ----------- -----------
Tax (charge) / benefit 1,871 3,718 (26,465) (29,543)
============ =========== =========== ===========
</TABLE>
Tax loss carry forward for the six months period ended June 30, 2000
amounted to PLN 36,143. The losses can be offset against taxable
income if any, during the following six months of year 2000 or
during the five years after December 31, 2000.
According to the Polish tax regulations, the tax rate in effect in
1999 was 34%. The tax rates set for years 2000, 2001, 2002, 2003 and
2004 and thereafter are as follows 30%, 28%, 28%, 24% and 22%,
respectively.
-------------------------------------------------------------------------------
- 18 -
<PAGE> 39
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
11. TAXATION (CONTINUED)
The numerical reconciliation between tax benefit / (charge) and the
product of accounting profit / (loss) multiplied by the applicable
tax rates is as follows:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
-------- -------- -------- --------
2000 2000 1999 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
----------------- ---------------- ----------------- -----------------
<S> <C> <C> <C> <C>
Profit / (loss) before taxation (144,572) (177,963) (102,729) 24,444
Tax rate 30% 30% 34% 34%
------------ ------------ ------------ ------------
Tax benefit / (charge) using statutory rate 43,372 53,389 34,928 (8,311)
Permanent differences (5,821) (3,151) (1,331) (420)
Change in temporary differences for
which realization is not probable and (45,713) (50,769) (52,280) (13,035)
temporary differences written-off
Effect of different tax rates 2,432 1,033 (80) 496
and rules in foreign entities
Change in tax rates 3,837 (2,079) 576 726
Tax loss carry forward for which
realization is not probable - - - 2,217
Refiling of 1998 tax return - - (571) (571)
Adjustments to deferred taxes 3,764 5,295 (7,707) (10,645)
------------ ------------ ------------ ------------
Tax benefit / (charge) 1,871 3,718 (26,465) (29,543)
============ ============ ============ ===========
</TABLE>
-------------------------------------------------------------------------------
- 19 -
<PAGE> 40
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
11. TAXATION (CONTINUED)
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Deferred tax assets in Poland:
Bad debt provision 89,223 71,807
Unrealized foreign exchange loss, net 56,695 37,623
Accrued interest 18,316 26,029
Book versus tax basis of fixed assets 17,277 21,631
Accrued expenses 23,183 9,457
Accrued advertising 10,028 1,638
Inventory provision 3,653 2,293
Development costs 1,199 1,719
Tax losses carry forward 10,843 -
------------- -------------
230,417 172,197
Temporary differences for which realization is not probable
("valuation allowance") (130,443) (97,037)
------------ ------------
99,974 75,160
Deferred tax liabilities in Poland:
Book versus tax basis of GSM licenses
(124,831) (102,482)
------------ ------------
Net deferred tax liability (24,857) (27,322)
============ ============
</TABLE>
The amount of valuation allowance consists primarily of the
unrealized foreign exchange losses on long-term Notes and the bad
debt provision for which tax deductibility is yet uncertain.
-------------------------------------------------------------------------------
- 20 -
<PAGE> 41
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
12. SHORT-TERM INVESTMENTS
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Short-term investments 202,583 198,468
</TABLE>
Short-term investments at June 30, 2000 consisted of the current
portion of US Treasury Bills and Deutsche Treasury Bills, recorded
at cost plus accrued interest which approximate their market value.
These Treasury Bills are part of an escrow fund established to
secure payment of interest during the first two and a half years on
the 11 1/4 Notes issued by PTC International Finance II S.A. in
1999. The long-term portion (PLN 208,408 as of June 30, 2000) of the
escrow fund is presented in the balance sheet under financial assets
caption.
13. DEBTORS AND PREPAYMENTS
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Trade debtors and accrued income 555,321 505,043
Other debtors 43,635 43,145
Prepaid expenses 41,130 27,862
Corporate Income Tax and other taxes
recoverable from State Treasury 12,133 54,835
Accounts receivable from shareholders 2,221 194
------------ ------------
654,440 631,079
Provision for doubtful debtors (172,038) (166,834)
------------ ------------
482,402 464,245
============ ============
</TABLE>
-------------------------------------------------------------------------------
- 21 -
<PAGE> 42
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
14. INVENTORY
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Telephones 220,868 135,362
Accessories and other 47,782 56,808
----------- -----------
268,650 192,170
Inventory provision (13,046) (8,190)
----------- -----------
255,604 183,980
=========== ===========
</TABLE>
15. TANGIBLE FIXED ASSETS, NET
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Land and buildings 193,722 195,771
Plant and equipment 2,259,131 1,954,057
Motor vehicles 11,383 12,061
Other fixed assets 272,561 208,389
Construction in progress 229,026 203,627
-------------- --------------
2,965,823 2,573,905
============== ==============
</TABLE>
For tangible fixed assets under construction, the Company
capitalizes interest and foreign exchange gains/losses incurred and
directly attributable to the acquisition and construction of the
qualifying assets. The financing costs are capitalized only during
the period of construction of the qualifying assets. During the six
months period ended June 30, 2000 the Company capitalized PLN 2,141
of foreign exchange gains and no interest expense (during three
months ended June 30, 2000 the Company did not capitalized any
foreign exchange losses/gains or interest expense). For the six
months period ended June 30, 1999, the Company capitalized PLN
13,028 of foreign exchange losses and no interest expense (PLN 7,268
of foreign exchange gains and no interest expense during three
months period ended June 30,1999).
-------------------------------------------------------------------------------
- 22 -
<PAGE> 43
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
15. TANGIBLE FIXED ASSETS, NET (CONTINUED)
The movement in each period was as follows:
<TABLE>
<CAPTION>
LAND AND PLANT AND MOTOR OTHER FIXED CONSTRUCTION TOTAL
-------- --------- ----- ----------- ------------ -----
BUILDINGS EQUIPMENT VEHICLES ASSETS IN PROGRESS
--------- --------- -------- ------ -----------
<S> <C> <C> <C> <C> <C> <C>
COST
At January 1, 1999 80,768 951,995 14,915 48,530 702,567 1,798,775
Additions 119,169 - - 4,164 1,023,527 1,146,860
Transfers - 1,287,060 9,317 182,419 (1,503,373) (24,577)
Disposals - (1,273) (794) (2,923) (19,094) (24,084)
------------ ----------- ----------- ------------ ------------- --------------
At December 31, 1999 199,937 2,237,782 23,438 232,190 203,627 2,896,974
------------ ----------- ----------- ------------ ------------- --------------
DEPRECIATION
At January 1, 1999 814 107,266 6,661 12,852 - 127,593
Charge 3,352 189,142 5,158 13,678 - 211,330
Transfers - (12,190) - 4 - (12,186)
Disposals - (493) (442) (2,733) - (3,668)
------------ ----------- ----------- ------------ ------------- --------------
At December 31, 1999 4,166 283,725 11,377 23,801 - 323,069
------------ ------------ ------------ ------------ ------------- --------------
NET BOOK VALUE AT 195,771 1,954,057 12,061 208,389 203,627 2,573,905
DECEMBER 31, 1999 =========== ============ ============ ============ ============= ==============
COST
At January 1, 2000 199,937 2,237,782 23,438 232,190 203,627 2,896,974
Additions 97 5,940 - 1,715 572,227 579,979
Transfers (1) 450,096 2,324 74,968 (527,387) -
Disposals - (8,573) (463) (594) (19,441) (29,071)
------------ ----------- ----------- ------------ ------------- --------------
At June 30, 2000 200,033 2,685,245 25,299 308,279 229,026 3,447,882
------------ ----------- ----------- ------------ ------------- --------------
DEPRECIATION
At January 1, 1999 4,166 283,725 11,377 23,801 - 323,069
Charge 2,145 150,757 2,838 12,504 - 168,244
Disposals - (8,368) (299) (587) - (9,254)
------------ ----------- ----------- ------------ ------------- --------------
At June 30, 2000 6,311 426,114 13,916 35,718 - 482,059
------------ ------------ ------------ ------------ ------------- --------------
NET BOOK VALUE AT
JUNE 30, 2000 193,722 2,259,131 11,383 272,561 229,026 2,965,823
(UNAUDITED) =========== ============ ============ ============ ============= ==============
</TABLE>
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<PAGE> 44
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
15. TANGIBLE FIXED ASSETS, NET (CONTINUED)
Tangible fixed assets held under capital leases (included in above
schedule):
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
LAND BUILDINGS OTHER LAND BUILDINGS OTHER
---- --------- ----- ---- --------- ------
<S> <C> <C> <C> <C> <C> <C>
Cost 6,293 193,177 990 6,293 193,177 990
Accumulated depreciation - (6,311) (91) - (4,166) (41)
---------- ---------- ---------- ---------- ---------- ----------
Net 6,293 186,866 899 6,293 189,011 949
========== ========== ========== ========== ========== ==========
</TABLE>
16. INTANGIBLE FIXED ASSETS, NET
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
GSM licenses 921,647 953,226
Computer software 100,897 97,388
Trademark 153 161
--------------- ---------------
1,022,697 1,050,775
============== ===============
</TABLE>
During the six months period ended June 30, 2000 the Company
capitalized PLN 4,887 of foreign exchange gains and 7,132 of
interest expense on intangible assets (during three months period
ended June 30, 2000 the Company did not capitalize any foreign
exchange losses/gains or interest expense). During the six months
and three months periods ended June 30, 1999 the Company did not
capitalize any foreign exchange losses or interest expense on
intangible fixed assets.
The Company has no intangible assets generated internally.
------------------------------------------------------------------------------
- 24 -
<PAGE> 45
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
16. INTANGIBLE FIXED ASSETS, NET (CONTINUED)
The movement in each period was as follows:
<TABLE>
<CAPTION>
GSM COMPUTER TRADE
LICENSES SOFTWARE MARK TOTAL
-------- -------- ---- -----
<S> <C> <C> <C> <C>
COST
At January 1, 1999 700,564 46,691 206 747,461
Additions 408,905 82,833 - 491,738
------------- ------------ ------------ ------------
At December 31, 1999 1,109,469 129,524 206 1,239,199
------------- ------------ ------------ ------------
AMORTIZATION
At January 1, 1999 107,498 10,527 32 118,057
Charge 48,745 21,609 13 70,367
------------- ------------ ------------ -------------
At December 31, 1999 156,243 32,136 45 188,424
------------- ------------ ------------ -------------
NET BOOK VALUE AT
DECEMBER 31, 1999 953,226 97,388 161 1,050,775
============= ============ ============ =============
COST
At January 1, 2000 1,109,469 129,524 206 1,239,199
Additions 2,245 36,554 - 38,799
------------- ------------ ------------ ------------
At June 30, 2000 1,111,714 166,078 206 1,277,998
------------- ------------ ------------ ------------
AMORTIZATION
At January 1, 2000 156,243 32,136 45 188,424
Charge 33,824 33,045 8 66,877
------------- ------------ ------------ -------------
At June 30, 2000 190,067 65,181 53 255,301
------------- ------------ ------------ -------------
NET BOOK VALUE AT
JUNE 30, 2000
(UNAUDITED) 921,647 100,897 153 1,022,697
============= ============ ============ =============
</TABLE>
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- 25 -
<PAGE> 46
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
17. DEFERRED COSTS
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Notes issuance cost 67,795 69,897
Senior debt issuance cost 11,692 12,493
Other 13,932 2,863
---------- ----------
93,419 85,253
====== ======
</TABLE>
As explained in Note 19, the Company obtained long-term financing by
issuing 10 3/4 Notes, in July 1997, and 11 1/4 Notes in November,
1999 and through Citibank loan facility ("Loan facility"), signed in
December 1997. These debt issuance costs have been deferred and are
amortized over the period of financing (10 years for 10 3/4 Notes
and 11 1/4 Notes, 8 years for Loan facility).
-------------------------------------------------------------------------------
- 26 -
<PAGE> 47
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
18. CURRENT LIABILITIES
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Construction payables 373,621 455,557
GSM licenses liabilities 295,476 206,666
Trade creditors 192,165 247,956
Accruals 126,819 154,605
Deferred income 88,419 48,998
Amounts due to State Treasury 67,260 27,790
Finance leases payable (see Note 22) 30,412 28,080
Payroll 733 3,351
Accounts payable to shareholders 590 6,201
-------------- --------------
1,193,503 1,179,204
============== ==============
</TABLE>
In May 1998, the Company entered into a short-term renewable
overdraft agreement with Bank Rozwoju Eksportu S.A. The terms
provided for maximum borrowings of PLN 30,000 thousand and interest
based on 1 month WIBOR plus 0.5% p.a. (18.05% as of June 30, 2000).
No borrowings were outstanding as of June 30, 2000 and as of
December 31, 1999.
In June 2000, the Company entered into a short-term renewable
overdraft agreement with Citibank (Poland) S.A. The terms provided
for maximum borrowings of DEM 10,000 thousand and interest based on
TOMNEX WIBOR plus 0.5% p.a. counted for each interest period
separately (18.14% as of June 30, 2000). No borrowings were
outstanding as of June 30, 2000.
-------------------------------------------------------------------------------
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<PAGE> 48
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
19. LONG-TERM INTEREST-BEARING LIABILITIES
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Long-term Notes 2,795,909 2,654,021
Loan facility 594,768 1,076,566
Shareholders loan 365,652 325,075
Finance leases payable (see Note 22) 209,106 190,259
GSM licenses liability 121,711 332,491
--------------- ---------------
4,087,146 4,578,412
=============== ===============
</TABLE>
On July 1, 1997, PTC International Finance B.V., a wholly owned
subsidiary of the Company, issued 10 3/4 % Senior Subordinated
Guaranteed Discount Notes ("10 3/4 Notes"). The 10 3/4 Notes are
unsecured, subordinated obligations of PTC International Finance
B.V. and are limited to an aggregate principal amount at maturity of
approximately USD 253 million (PLN 1,111 million as of June 30,
2000). The 10 3/4 Notes are issued at a discount to their principal
amount at maturity to generate gross proceeds of approximately USD
150 million (PLN 493 million at historical exchange rate). The 10
3/4 Notes will mature on July 1, 2007. Cash interest does not accrue
on the 10 3/4 Notes prior to July 1, 2002. The obligations of PTC
International Finance B.V. under the 10 3/4 Notes are fully and
unconditionally guaranteed by the Company on a senior subordinated
and unsecured basis pursuant to the Company Guarantee. The net
proceeds from the 10 3/4 Notes are loaned to the Company.
The 10 3/4 Notes are traded publicly in the United States and their
market value as of June 30, 2000 was 71% of the nominal value (USD
180 million or PLN 789 million) whilst the carrying amount is PLN
902 million.
On November 23, 1999, PTC International Finance II S.A., a wholly
owned subsidiary of PTC International Finance (Holding) B.V. that is
wholly owned by the Company, issued 11 1/4% Senior Subordinated
Guaranteed Discount Notes ("11 1/4 Notes"). The 11 1/4 Notes are
unsecured, subordinated obligations of PTC International Finance II
S.A. and are limited to an aggregate principal amount at maturity of
Euro 300 million and USD 150 million (PLN 1,921 million as of June
30, 2000). The 11 1/4 Notes were issued at a discount to their
principal amount at maturity to generate gross proceeds of
approximately Euro 296 million and USD 148 million (PLN 1,897
million at historical exchange rate).
-------------------------------------------------------------------------------
- 28 -
<PAGE> 49
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
19. LONG-TERM INTEREST-BEARING LIABILITIES (CONTINUED)
The 11 1/4 Notes will mature on December 1, 2009. Cash interest
accrues on the 11 1/4 Notes and is payable semi-annually, on each
June 1 and December 1, beginning in year 2000. The accrued interest
on the 11 1/4 Notes is presented in the balance sheet within the
current liabilities.
Payment of the first five interest coupons will be made from the
funds set on escrow account and invested in US Treasury Bills and
Deutsche Treasury Bills (see Note 12).
The obligations of PTC International Finance II S.A. under the 11
1/4 Notes are fully and unconditionally guaranteed by the Company on
a senior subordinated and unsecured basis pursuant to the Company
Guarantee. The proceeds from the 11 1/4 Notes are loaned to the
Company.
On March 10, 2000 the offer for the 11 1/4 Exchange Notes was
issued. The offer expired on May 2, 2000. The terms of the Exchange
Notes are substantially identical to the old Notes, except that they
can be freely traded. Their market value as of June 30, 2000 was
104% of the nominal value for the Euro part (Euro 312 million or PLN
1,313 million) and 102% of the nominal value for the USD part (USD
153 million or PLN 672 million). The carrying amounts as of June 30,
2000 were PLN 1,257 million and PLN 656 million for Euro and USD
portions, respectively.
-------------------------------------------------------------------------------
- 29 -
<PAGE> 50
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
19. LONG-TERM INTEREST-BEARING LIABILITIES (CONTINUED)
On December 17, 1997 the Company signed a loan facility agreement
with a consortium of banks organized by Citibank N.A. The balance
outstanding as of June 30, 2000 amounted to PLN 595 million which
consisted of PLN 485 million (equivalent of 225 DEM as of June 30,
2000) and USD 25 million (equivalent of PLN 110 million as of June
30, 2000) borrowings. The main terms of the agreement are as
follows:
<TABLE>
<S> <C>
Facility limit equivalent of DM 672 million
Interest LIBOR or WIBOR
plus margin of 0.95% p.a.
stepping down to 0.40% p.a.
Commitment fee 0.3% (as of June 30, 2000)
Collateral pledge of Company's assets,
rights and shares
Repayment date reduction in facility limit
starting from December 17, 2000
to December 17, 2005
</TABLE>
The fees for the Company's GSM 900 and GSM 1800 licenses are
denominated in Euro and payable in installments. These deferred
payments have been discounted at 6.78% (GSM 900 license from 1996)
and at 9.52% (GSM 1800 license from 1999), which approximated the
Company's borrowing rate for Euro as of the dates of acquisition of
the licenses. As of June 30, 2000 the fair market value of the GSM
900 license liability discounted at 9.52% amounted to PLN 221
million whilst carrying amount was PLN 226 million.
The balances payable as of June 30, 2000 (unaudited) were:
<TABLE>
<CAPTION>
EUR'000 EUR'000 PLN'000
Maturity nominal discounted discounted
-------- ------- ---------- ----------
<S> <C> <C> <C>
Due in one year (see Note 18) 72,816 70,226 295,476
Due in year two 16,716 15,094 63,508
Due in year three 16,716 13,833 58,203
------------- ------------- -------------
106,248 99,153 417,187
============= ============= =============
</TABLE>
-------------------------------------------------------------------------------
- 30 -
<PAGE> 51
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
19. LONG-TERM INTEREST-BEARING LIABILITIES (CONTINUED)
The balances payable as of December 31, 1999 were:
<TABLE>
<CAPTION>
EUR'000 EUR'000 PLN'000
Maturity nominal discounted discounted
-------- ------- ---------- ----------
<S> <C> <C> <C>
Due in one year (see Note 18) 51,035 49,573 206,666
Due in year two 72,815 66,587 277,596
Due in year three 16,716 13,168 54,895
------------- ------------- -------------
140,566 129,328 539,157
============= ============= =============
</TABLE>
In August 1999, the Company's operating shareholders i.e. Elektrim
S.A., DeTeMobil Deutsche Telekom MobilNet GmbH ("DeTeMobil") and
MediaOne International B.V. ("MediaOne"), extended USD 75 million
(PLN 329 million as of June 30, 2000) in subordinated loans as
follows: Elektrim S.A., equivalent of USD 40 million, DeTeMobil, USD
17.5 million; and MediaOne, USD 17.5 million. Each shareholder loan
bears an interest rate of 12.5% compounded semi-annually on June 17
and December 17, however both principal amounts and accrued interest
are due on June 19, 2006.
20. PROVISIONS FOR LIABILITIES AND CHARGES
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Social fund 2,877 1,220
------- -------
2,877 1,220
======= =======
</TABLE>
The social fund is an employer's obligation based on a mandated
calculation based on the number of employees and the monthly minimum
wage in Poland. The amounts calculated under this formula must be
used for the benefits of the employees.
-------------------------------------------------------------------------------
- 31 -
<PAGE> 52
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
21. SHARE CAPITAL
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Allotted, called-up and fully paid:
471,000 ordinary shares of 1,000 PLN each
471,000 471,000
======= =======
</TABLE>
22. FINANCE LEASES
On March 25, 1997 the Company entered into a finance lease agreement
relating to its new headquarters building and underlying land. The
term of the lease is 15 years and the Company has a right to acquire
the leased asset at the end of the lease.
The headquarters lease obligation, consisting of two buildings,
first occupied in 1998 and second in August 1999, is denominated in
USD and payable in PLN. The nominal value of future lease payments
is USD 107.3 million or PLN 471 million (USD 46.5 million and USD
60.8 million, 1st and 2nd building, respectively), consisting of
minimum monthly payments of USD 616 thousand (PLN 2,703) and a
purchase option of USD 11.8 million or PLN 51.9 million (USD 5.7
million and USD 6.1 million, 1st and 2nd building respectively).
Annually, the Company's lease liability is changed based on CPI.
This resulted in an increase in minimum monthly payments of USD 4.3
thousand (PLN 18.8 thousand) in 1999 and of USD 16.8 thousand (PLN
74 thousand) in 2000.
23. DIVIDEND RESTRICTION
The Company's statutory financial statements are prepared in
accordance with Polish accounting regulations. Dividends may only be
distributed from the net profit reported in the Polish annual
statutory financial statements. As of June 30, 2000, the Company had
no net profit available for distribution.
-------------------------------------------------------------------------------
- 32 -
<PAGE> 53
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
24. SUPPLEMENTARY CASH FLOW INFORMATION
Cash and cash equivalents consist of cash on hand, balances
deposited with banks and short-term, highly liquid investments.
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Balances deposited with banks:
Current accounts 14,153 29,422
Term deposits with original maturity of less then 90 days 86,416 654,305
Treasury bills with original maturity of less then 90 days - 410,694
Social fund cash 1,576 468
Cash on hand 407 620
------------- -------------
102,552 1,095,509
============= =============
</TABLE>
At June 30, 2000 the Company revalued cash on hand and balances
deposited with banks denominated in foreign currencies. The net
result of the revaluation was PLN 6,844 of foreign exchange losses,
which were reported under interest and other financial expenses.
The social fund cash is restricted for the benefits of the employees
as described in Note 4.e.
-------------------------------------------------------------------------------
- 33 -
<PAGE> 54
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
25. SUPPLEMENTARY INFORMATION TO IAS FINANCIAL STATEMENTS
A reconciliation of the Company's consolidated net loss under PAS and
IAS is summarized as follow:
<TABLE>
<CAPTION>
SIX MONTHS ENDED THREE MONTHS ENDED SIX MONTHS ENDED THREE MONTHS ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
-------- -------- -------- --------
2000 2000 1999 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C>
Comprehensive net loss under PAS (121,048) (93,115) (114,391) (4,097)
Foreign translation difference (225) (394) (1,312) 728
IAS adjustment for GSM
licenses amortization 2,853 1,569 2,281 1,140
IAS adjustment for GSM
licenses discount (14,026) (7,423) (11,719) (5,325)
Unrealized foreign exchange differences (14,201) (81,173) 7,711 12,184
Finance lease (163) (1,017) (1,111) 278
IAS assets adjustment (1,485) (742) (4,648) (866)
Development and start-up costs 1,792 896 1,793 897
Deferred tax benefit/(charge) 3,802 7,154 (7,798) (10,038)
----------- ----------- ----------- -----------
Comprehensive net loss under IAS (142,701) (174,245) (129,194) (5,099)
=========== =========== =========== ===========
</TABLE>
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- 34 -
<PAGE> 55
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
25. SUPPLEMENTARY INFORMATION TO IAS FINANCIAL STATEMENTS (CONTINUED)
A reconciliation of the Company's shareholders' equity under PAS and
IAS is summarized as follow:
<TABLE>
<CAPTION>
SHAREHOLDERS' EQUITY AT
JUNE 30, DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Shareholders' equity under PAS 31,157 151,681
Foreign translation difference (2,401) (1,652)
IAS adjustment for GSM
licenses amortization 18,474 15,621
IAS adjustment for GSM
licenses discount (67,210) (53,184)
Unrealized foreign exchange
differences 25,654 39,855
Finance lease 3,054 3,217
IAS assets adjustment 9,283 10,768
Development an start-up costs (4,090) (5,882)
Deferred tax benefit 11,184 7,382
------------ ------------
Shareholders' equity under IAS 25,105 167,806
============ ============
</TABLE>
The above differences are caused by the following reasons:
- Recognition of the long-term license liabilities at present
value for IAS purposes, while they were recorded at undiscounted
nominal value under Polish accounting regulations. This
accounting results in higher interest expense under IAS, which
is partially offset by lower amortization expense and foreign
exchange losses,
- Unrealized foreign exchange gains recognized as financial income
for IAS purposes but deferred for PAS purposes,
- Difference in treatment of assets held under finance lease and
other capital assets written off for PAS purposes,
- Development and start-up costs expensed in IAS according to IAS
38 "Intangible Assets",
- Adjustment to deferred tax on temporary differences in preceding
adjustments.
-------------------------------------------------------------------------------
- 35 -
<PAGE> 56
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
26. DIFFERENCES BETWEEN IAS AND U.S. GAAP
The Company's condensed consolidated financial statements are
prepared in accordance with International Accounting Standards,
which differ in certain respects from U.S. GAAP.
The effect of the principal differences between IAS and U.S. GAAP in
relation to the Company's consolidated financial statements are
presented below, with explanations of certain adjustments that
affect total comprehensive net income / (loss) for the six months
and three months periods ended June 30, 2000 and June 30, 1999.
Reconciliation of consolidated net profit/(loss):
<TABLE>
<CAPTION>
SIX MONTHS THREE MONTHKS SIX MONTHS THREE MONTHS
ENDED ENDED ENDED ENDED
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2000 2000 1999 1999
(UNAUDITED) (UNAUDITED) (UNAUDITED) (UNAUDITED)
---------------- ---------------- ----------------- -----------
<S> <C> <C> <C> <C>
Consolidated net loss
reported under IAS (142,701) (174,245) (129,194) (5,099)
U.S. GAAP adjustments:
(a) Removal of foreign exchange
differences capitalized for IAS 7,028 - 13,028 33,324
(b) Depreciation and amortization of
foreign exchange 4,581 2,293 2,863 1,443
(c) Development and start-up cost
capitalized, net - - (9,468) -
(f) Deferred tax on above - - 2,938 -
------------ ------------ ------------ ------------
Consolidated net profit / (loss) under U.S.
GAAP (131,092) (171,952) (119,833) 29,668
============ ============ ============ ============
</TABLE>
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- 36 -
<PAGE> 57
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
26. DIFFERENCES BETWEEN IAS AND U.S. GAAP (CONTINUED)
RECONCILIATION OF CONSOLIDATED NET ASSETS:
<TABLE>
<CAPTION>
AT JUNE 30, AT DECEMBER 31,
2000 1999
---- ----
(UNAUDITED)
<S> <C> <C>
Consolidated net assets
reported under IAS 25,105 167,806
U.S. GAAP adjustments:
(a) Removal of foreign exchange
differences capitalized for IAS (96,212) (103,240)
(b) Depreciation and amortization on
above 18,358 13,777
------------- ------------
Consolidated net assets
under U.S. GAAP (52,749) 78,343
============= ============
</TABLE>
(a) Removal of foreign exchange differences capitalized for
IAS
In accordance with IAS 23 "Borrowing Costs", the Company capitalizes
financing costs, including interest and foreign exchange gains or
losses, into assets under construction.
For tangible fixed assets under construction, the Company
capitalizes interest and foreign exchange gains or losses incurred
and directly attributable to the acquisition and construction of the
qualifying assets that would have been avoided if the expenditure on
the qualifying assets had not been made. The financing costs are
capitalized only during the period of construction of the qualifying
assets (see Note 15). As explained in Note 4.b., the Company
capitalized financing costs attributable to the acquisition of its
GSM 900 and GSM 1800 licenses, including interest on the related
long-term obligation and foreign exchange losses because the GSM 900
and GSM 1800 licenses are integral parts of the network.
Under Statement of Financial Accounting Standards 52 "Foreign
Currency Translation", however, foreign exchange differences
relating to financing obligations should be included in the
statement of operations of the Company. Consequently, the amounts of
foreign exchange differences capitalized in accordance with IAS 23
in the Company's financial statements are expensed under U.S. GAAP.
-------------------------------------------------------------------------------
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<PAGE> 58
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
26. DIFFERENCES BETWEEN IAS AND U.S. GAAP (CONTINUED)
(b) Depreciation and amortization
The U.S. GAAP adjustments for depreciation and amortization shown
above represent the amounts of depreciation and amortization charges
relating to capitalized foreign exchanges differences in the
Company's IAS financial statements. Since under U.S. GAAP these
foreign exchange differences are not permitted to be capitalized and
are instead expensed, the depreciation and amortization of these
capitalized differences under IAS has been reversed.
(c) Development and start-up cost
As explained in Note 5.a for IAS purposes the Company has adopted
IAS 38 "Intangible Assets" in 1999 giving its effect
retrospectively. This has resulted in writing-off of development and
start-up cost when they arose in 1996. For U.S. GAAP purposes the
Company has written off in 1997 consulting cost relating to
structuring its business processes following to clarifications of
the Emerging Issues Task Force in the United States and has written
off in 1999 start-up cost following the issuance the SOP 98-5 in the
United States.
(d) Presentation of deferred taxation
Under IAS, passing certain criteria, the Company may net deferred
tax liabilities and assets and present a net balance in the balance
sheet. Under U.S. GAAP current and non-current portions of the above
should be disclosed separately. As of June 30, 2000 deferred tax
assets, as presented in Note 11, included PLN 79,395 of current
portion (PLN 27,472 as at December 31, 1999) and deferred tax
liability included PLN 9,552 of current portion (PLN 7,637 as at
December 31, 1999).
-------------------------------------------------------------------------------
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<PAGE> 59
POLSKA TELEFONIA CYFROWA SP. Z O.O. AND SUBSIDIARIES
NOTES TO THE CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(IN THOUSANDS OF PLN)
-------------------------------------------------------------------------------
26. DIFFERENCES BETWEEN IAS AND U.S. GAAP (CONTINUED)
(e) New U.S. standards
The Financial Accounting Standards Board ("FASB") recently issued
Statement of Financial Accounting Standards No. 133, "Accounting for
Derivative Instruments and Hedging Activities" ("SFAS 133"), which
requires that companies recognize all derivative as either assets or
liabilities in the balance sheet at fair value. Under SFAS 133,
accounting for changes in fair value of derivative depends on its
intended use and designation. SFAS 133 is effective for fiscal years
beginning after June 15, 1999. The Company is currently assessing
the effect of this new standard.
In June 1999, the FASB approved Statement of Financial Accounting
Standards No. 137, "Accounting for Derivative Instruments and
Hedging Activities - Deferral of the Effective Date of FASB
Statement No. 133" ("SFAS 137"). SFAS 137 amends the effective date
of SFAS 133. SFAS 133 will now be effective for fiscal quarters of
all fiscal years beginning after June 15, 2000.
-------------------------------------------------------------------------------
- 39 -
